UC-NRLF 


LIBRARY 


UNIVERSITY  OF  CALIFORNIA. 


GIFT    OF 


•TV,. 


Class 


PRICE,  25  CENTS. 


-••]  search-light  turned  upon  the  present  monetary  and 
banking  system,  revealing  it  as  the  producer  of  panics 
and  the  most  potent  factor  in  weaftk  concentration, 


BY 


JAMES  A.  FULTON, 

SECRETARY  OF  THE  AMERICAN  MONETARY  LEAGUE 


PUBLIC  MONEY, 

PUBLIC  BANKS, 

PUBLIC  WELFARE. 


Service  at  cost,  unchangeable  value,  freedom  of  access. 


OTHER  SIDE 


OF  THE 


MONEY  QUESTION. 


BY 

JAMES  A.  FULTON 


v 

\    U" 


UNIVERSITY 


vS 


1908 

HUTCHISON  &  BROADBENT, 
McKEESPORT,  PA. 


UNlVEfcSIT 


PREFACE 


When  any  comparatively  inexperienced  writer  ventures 
to  put  his  thoughts  and  opinions  into  a  definite  form  and 
place  them  before  the  public,  he  is  generally  expected  to  pre- 
face his  efforts  with  an  apology  to  his  [readers  for  attempt- 
ing to  trespass  upon  their  time. 

This  is  especially  true  if  the  subject  to  be  treated  is  one 
that  has  been  much  discussed  by  other  and  more  seasoned 
authors.  Those  who  would  invade  such  a  field  are  supposed 
to  tread  very  softly  and  be  very  reluctant  to  advance  any- 
thing different  from  the  general  average  of  what  has  already 
been  written  upon  the  subject. 

That  precaution  is  one  that  would  be  very  pertinent  if 
there  was  somewhat  of  a  consensus  of  opinion  among  the  es- 
tablished authors,  but  in  the  subject  of  "money,"  though 
tens  of  thousands  of  books,  pamphlets  and  tracts  have  been 
issued  and  countless  columns  of  newspaper  space  been  util- 
ized by  scores  and  scores  of  writers,  the  views  expressed  are 
so  varied  and  contradictory  that  the  comparatively  inexperi- 
enced may,  without  apology  and  even  with  some  degree  of 
confidence,  venture  into  the  field,  in  the  hope  that  he  may 
present  something  that  will  help  in  some  degree  to  bring 
about  that  which  the  established  authors  have  signally  failed 
to  produce  after  years  of  voluminous  writings. 

The  text  of  the  pamphlet  will,  I  hope,  be  sufficiently 
clear  to  not  require  any  explanatory  treatment  in  advance. 

It  endeavors  to  present  in  a  definite  form  some  of  the 
most  salient  features  of  the  "money  question,"  as  such  ques- 
tion, in  the  author's  judgment.,  presents  itself  before  the 
people  of  today  and  it  has  been  written  somewhat  particular- 


Preface. 

ly  to  make  clear  certain  points  that  were  hardest  for  him  to 
comprehend  and  which  he  humanly  assumes  may  have  con- 
founded many  others. 

It  does  not  pretend  to  be  an  exhaustive  treatment  even  of 
those  points  discussed,  much  less  a  discussion  of  the  whole 
money  subject,  but  is  simply  offered  in  the  hope  that  in  the 
reading  of  it  some  will  have  their  interest  sufficiently 
aroused  to  induce  them  to  study  the  subject  in  all  its  vari- 
ous phases. 

The  title,  "The  Other  Side,"  had  its  origin  in  connection 
with  a  paper  read  by  the  author  recently  before  the  Emerson 
Club  of  this  city.  The  subject  for  the  paper  was  to  be  the 
general  one  of  "Money,"  but  the  management  desired  a  more 
explicit  one  to  advertise.  In  my  quandary  I  stated  that  I 
wanted  to  discuss  the  other  side  of  money,  the  side  not 
given  so  much  publicity  from  press  and  platform.  The  sug- 
gestion seemed  to  arrest  attention,  "the  other  side"  was 
adopted  and,  as  this  pamphlet  is  in  the  nature  of  an  elabo- 
ration of  the  paper  read,  and  for  want  of  a  more  suitable  and 
expressive  one,  it  has  been  continued  in  that  position. 

McKEESPORT,  PA.,  January,  1908. 


The  Other  Side  of  the  Money  Question. 

CHAPTER  I. 

THE   MONEY   QUESTION    IN    THE    CONSTITUTIONAL    CONVEN- 
TION —  CONSTITUTIONAL    PROVISIONS  —  HIGHEST 
COURT   DECISIONS    UPON  THE  POWER    OF 
GOVERNMENT    OVER    MONEY. 

After  several  important  preliminary  conferences, 
there  assembled  in  Independence  Hall,  Philadelphia,  Pa., 
in  the  summer  of  1787,  one  of  the  greatest  conventions 
ever  held  in  the  history  of  the  world.  It  was  remark- 
able" both  for  the  purpose  for  which  it  had  convened  and 
for  the  character  and  ability  of  its  membership. 

The  purpose  was  to  formulate  a  Constitution  for 
the  Nation,  to  be  submitted  to  the  various  States  for 
their  approval  and  the  membership  of  the  Convention, 
in  harmony  with  such  great  purpose,  embraced  many  of 
the  greatest  intellects  and  devoted  patriots  of  the  day, 
George  Washington  being  chosen  as  Chairman  of  the 
Convention. 

The  Convention  was  in  session  day  after  day  until 
four  months  had  thus  been  occupied.  Many  and  varied 
were  the  measures  proposed  for  incorporation  in  the 
document.  The  discussion  of  almost  every  word  or 
phrase  was"  quite  extensive.  Little  was  taken  for  granted 
or  accepted  because  proposed  by  someone  of  great  pub- 
lic standing,  but  everything  was  submitted  to  the  fire 
of  criticism  by  those  holding  different  views. 


8  "The  Other  Side  of  The  [Money  Question. 

Owing  to  conflicting  opinions  that  were  impossible 
to  harmonize,  many  things  were  omitted  that  were  fa- 
vored by  some  of  the  ablest  members,  while  some  things 
were  included  that  did  not  meet  with  their  approval. 

As  was  clearly  inevitable  from  its  inception,  the  pro- 
duct was  a  compromise  by  those  having  varying  opinons 
on  public  questions  in  general,  but  each  and  all  actuated 
by  a  patriotic  desire  to  get  the  infant  Nation  established 
upon  a  solid  and  enduring  foundation. 

The  Constitution,  as  they  finally  completed  it  and 
as  it  was  afterwards  approved  by  the  various  States, 
thus  became  the  supreme  law  of  the  Nation. 

It  was  the  law  of  the  people  and  it  defined  the  gen- 
eral manner  and  scope  in  which  their  government  should 
operate. 

It  was  intensely  radical  in  such  respect,  for  at  that 
time  in  most  nations  the  government  was  presumed  to 
be  the  fountain  head  of  authority  and  dictated  to  the 
people,  or  subjects,  as  to  what  they  should  or  should 
not  do.  In  those  days  is  was  generally  treason  and  po- 
litical heresy  for  the  people  to  say  that  they  were  the 
rightful  master  and  government  their  servant. 

The  Constitution  provided  for  the  Legislative,  Exe- 
cutive and  Judicial  branches  of  t^ie  Government  and  the 
powers  and  duties  of  each,  with  the  end  in  view  of  hav- 
ing each  become  a  part  of  one  harmonious  system,  or  as 
nearly  harmonious  as  the  connections  in  public  opinion 
would  permit. 


The  Other  Side  of  The  [Money  Question.  9 

To  Congress,  as  the  Legislative  body,  was  delegated 
a  large  field  of  action.  It  was  charged  with  the  powers 
of  and  the  duty  of  providing  many  things  for  the  nation. 
Among  these  we  find  the  'following: — 

Art.  I.  Sec.  VIII.  "The  Congress  shall  have  power 
*******  TO  coin  money  and  regulate  the  value  there- 
of, and  of  foreign  coins  *  *  *  *  *  *  ' 

In  that  Constitutional  provision  the  people  gave  to 
the  National  Government  supreme  authority  over  the 
money  of  the  nation  and  that  provision  remains  unalter- 
ed to  the  present  day.  No  attempt  has  ever  been  made 
to  change  the  Constitution  in  such  respect. 

But  as  if  to  make  the  subject  even  more  clear  they 
provided  in — 

Art  I.  Sec.  X.  "No  state  shall  *  *  *  *  *  coin  money, 
emit  bills  of  credit:  make  anything  but  gold  and  silver 
coin  a  tender  in  payment  of  debts." 

Thus  the  framers  of  the  Constitution  tried  t©  doubly 
emphasize  the  fact  that  the  National  Government  alone 
was  to  exercise  the  power  of  issuing  money  and  that 
the  several  States  were  not  to  interfere  in  such  field. 

Not  being  content  with  taking  away  all  power  to 
issue  money  from  the  States  and  lodging  it  with  Nation- 
al Government,  the  provision  to  debar  States  from  emit- 
ting "bills  of  credit"  was  very  evidently  for  the  purpose 
of  preventing  the  States  issuing  anything  intended  to 
circulate  as  money  or  as  a  substitute  for  money,  for  we 
must  remember  that  at  that  time  a  very  large  proportion 


io  The  Other  Side  of  The  Money  Question. 

of  the  general   business  was   transacted  by   the  use   of 
"bills  of  credit"  emitted  by  the  various  States. 

It  was  proposed  in  the  Convention  to  debar  the  Na- 
tional Government  from  emitting  "bills  of  credit,"  but 
this  was  defeated,  partly  because  it  was  impossible  to 
foresee  the  emergencies  that  the  Government  might 
have  to  meet  and  partly  because  it  might  be  construed 
as  a  denial  of  the  power  of  the  Government  to  issue  pa- 
per money. 

The  advocates  of  paper  money,  under  the  leadership 
of  the  illustrious  Benjamin  Franklin,  were  a  strong  fac- 
tor in  the  Convention. 

It  was  also  proposed  to  give  Congress  a  specific 
power  to  emit  "bills  of  credit,"  but  this  too  was  defeated, 
mainly  because  it  was  believed  that  such  specific  grant 
might  be  construed  as  an  obligation  upon  Congress  to 
issue  paper  money  and  that  such  provision,  if  adopted 
by  the  Convention,  would,  arouse  so  much  hostility  on 
the  part  of  the  money  power  of  that  day  that  it  would 
use  its  efforts  to  and  perhaps  prevent  the  adoption  of 
the  Constitution. 

As  a  compromise,  the  subject  was  ignored,  the  docu- 
ment as  completed  giving  Congress  neither  a  specific 
grant  to  emit  "bills  of  credit"  or  containing  any  prohi- 
bition of  the  same. 

In  after  years  the  Supreme  Court  decided  that  Con- 
gress has  the  power,  under  the  Constitution  and  as  the 
highest  legislative  body  of  the  nation,  to  emit  "bills  of 


The  Other  Side  of  Tbe  Money  Question.  1 1 

credit"  and  that  such  bills  could  be  made  a  full  legal 
tender  money. 

Those  clauses  were  not  incorporated  into  the  Con- 
stitution blindly  or  with  any  feeling  that  they  were  com- 
paratively unimportant.  On  the  contrary  we  have  every 
reason  to  believe  that  the  delegates  w^ere  fully  alive  to 
their  importance. 

Many  of  those  conceded  to  be  the  ablest  and  best 
posted  upon  monetary  topics  were  active  members  of 
the  Convention  and  all  endorsed  the  proposal  to  make 
the  Na/tional  government,  supreme  in  monev  affairs. 
The  many  different  measures  by  which  the  various  Col- 
onies and  the  different  States  under  the  Articles  of  Con- 
federation had  sought  to  maintain  their  money  systems, 
the  general  confusion  and  unsatisfactory  conditions  of 
.  the  same,  were  fresh  in  their  minds  and  no  doubt  con- 
tributed in  large  measure  to  bring  about  such  unanimity 
of  opinion. 

The  principle  of  giving  the  highest  legislative  body 
of  a  nation  supreme  jurisdiction  over  its  money  is  not 
a  principle  original  wrrth  this  country  and  the  members 
of  the  Convention  did  not  assume  to  be  establishing  any- 
thing new  in  the  government  of  nations  when  they 
adopted  such  principle. 

It  was  but  the  re-affirmation  and  incorporation  into 
the  fundamental  law  of  this  country  of  a  principle  well 
established  and  practically  undisputed  in  nearly  every 


12  The  Other  Side  of  The  Money  Question. 

age  and  nation  from  the  earliest  days  of  civilization —  , 
viz — 

That  the  issue  and  control  of  money  is  a  preroga- 
tive of  government  and  can  only  be  rightly  performed 
by  the  highest  power  in  the  land  and  that  all  private  or 
corporate  use  of  money  is  subservient  to  the  action  of 
that  power. 

The  highest  courts  in  all  lands  have  uniformly  and 
repeatedly  upheld  such  position  and  it  is  very  seldom 
openly  or  directly  denied  or  questioned 

Upon  this  point  many  decisions  might  be  quoted, 
but  a  brief  mention  of  three  or  four  of  comparatively 
modern  date  will  suffice  to  indicate  the  general  trend. 
A  complete  text  of  the  many  decisions  bearing  upon 
such  subject  would  fill  many  pages,  or  rather  volumes. 

The  case  known  as  "The  Mixed  Money  Case"  is  one 
of  the  greatest  cases  bearing  upon  money  in  the  courts 
of  England  and  the  decision  in  that  case  is  one  of  the 
most  profound  and  exhaustive  in  all  monetary  history. 

A  resident  of  Ireland  had,  in  1599  purchased  wares 
of  a  London  merchant  to  the  amount  of  "one  hundred 
pounds  sterling,  current  and  lawful  money  of  England" 
and  gave  bond  for  the  payment  of  the  same  at  a  later 
date,  in  Dublin.  Between  the  time  of  purchase  and  date 
for  payment,  Queen  Elizabeth  had  caused  a  quantity  of 
base  pieces  to  be  coined,  with  the  royal  arms  and  other 
marks  of  authority  upon  them,  made  them  a  legal  ten- 
der and  sent  them  to  Ireland  to  pay  off  the  royal  army 


The  Other  Side  of  The  Money  Question.  13 

maintained  there.  At  the  specified  date  for  payment, 
the  purchaser  of  the  goods  tendered,  at  the  proper  place 
in  Dublin,  one  hundred  pounds  in  the  new  money.  The 
seller  of  the  goods  refused  to  accept  such  tender  and 
sued  the  other. 

The  case  being  fraught  with  much  importance  on 
account  of  the  principle  involved,  it  was  transferred  to 
the  highest  English  courts  and  was  the  subject  of  most 
careful  examination.  The  court  did  not  restrict  its  in- 
quiry to  the  one  specific  point  at  issue,  but  covered  a 
wide  field  of  investigation.  The  decision,  delivered  in 
1604,  is  a  very  lengthy  one,  embodying  opinions  and 
decisions  of  the  authorities  for  centuries,  ancient  and 
modern. 

In  addition  to  deciding  that  the  purchaser  had  made 
a  good  legal  tender  for  his  indebtedness,  the  court,  in 
substance,  declared  that  the  Queen,  as  the  supreme 
power  of  the  land,  had  complete  dominion  over  its 
money  and  could  change  it  as  often  and  as  much  as 
she  desired  and  that  everyone  using  money  contracts 
must  predicate  their  contracts  upon  the  possibility  of 
such  changes ;  that  whatever  the  Queen  decreed  was 
•legal  money  at  the  time  of  payment  was  necessarily  the 
money  of  the  contract  and  that  no  person  could  contract 
himself  out  of  the  right  to  pay  and  the  right  to  receive 
payment  of  money  contracts  in  the  money  legally  cur- 
rent at  date  of  payment. 

Such    decision    has    continued    unquestioned    in    the 


14  The  Other  Side  of  The  Money  Question. 

English  courts  and  the  fundamental  principles  then 
clearly  upheld  have  also  been  upheld  by  the  Supreme 
Court  of  the  United  States  as  being  thoroughly  in  har- 
mony with  both  the  text  and  spirit  of  the  Constitution. 

Few,  if  any,  controversies  of  that  nature  were  raised 
prior  to  the  Civil  War,  but  the  issuance  of  "Greenbacks" 
during  the  war  was  made  the  subject  for  several  of  such 
decisions  by  the  Supreme  Court  between  1864  and  1884. 

The  decisions  unqualifiedly  uphold  the  supreme 
power  of  Congress  and  its  right  to  make  and  declare  any 
money  to  be  a  full  legal  tender  for  debts,  as  its  wisdom 
may  suggest.  As  a  review  of  .such  decisions  would  oc- 
cupy too  much  space  for  this  treatise  we  suggest  that 
a  careful  reading  of  such  decisions  will  make  a  verv  in- 
teresting study  for  those  inclined  to  further  investiga- 
tion along  that  line. 

Thus  we  find  that  the  Constitution,  supported  by 
the  Supreme  Court  decisions,  gives  Congress  unlimited 
scope  of  action  in  money  affairs. 

'While  at  first  glance  it  may  appear  as  if  the  Consti- 
tution is  r.ather  indefinite  in  its  treatment  of  such  a  very 
important  subject,  a  closer  study  of  the  nature  of  that 
subject  will  reveal  that  the  very  broad  position  taken  is 
in  reality  very  essential. 

Congress  was  given  unlimited  scope  of  power  and 
the  methods  and  detail  of  executing  that  power  were  for 
it  to  decide  from  time  to  time  as  in  its  judgment  seemed 
best  for  the  general  welfare.  Had  the  Constitution  im- 


r 


The  Other  Side  of  The  Money  Question.  1 5 

posed  any  details,  however  wise  such  details  might  have 
been  in  those  days,  the  progress  of  the  nation  and  meth- 
ods of  business  might  have  afterward  become  such  that 
the  measures,  amply  justified  at  the  beginning,  would 
have  become  wholly  inadequate  or  positively  injurious 
at  a  later  period  and  yet  could  only  be  altered  through 
the  slow  and  tedious  process  of  first  amending  the  Con- 
stitution. 

It  is  not  only  quite  probable,  but  certain,  that  many 
of  the  wisest  members  of  the  Constitutional  Convention 
clearly  grasped  the  idea  that  fundamentally  money  is  a 
function  rather  than  a  material  thing  and  that  they  pur- 
posely omitted  details  that  might  apparently  place  the 
function  itself  in  a  light  secondary  to  the  material  thing 
or  instrument  that  Congress  was  to  provide  with  which 
to  discharge  the  money  function. 

Congress  may  use  whatever  materials  it  wills  in  the 
coining  or  issuing  of  money.  It  may  use  costly  materials 
or  materials  of  least  cost.  It  may  use  gold,  silver,  cop- 
per, nickel,  paper  or  any  other  material  for  such  purpose. 
It  may  invest  any  or  all  of  such  money  with  full  legal 
tender  power  and  it  may  withdraw  such  legal  tender 
power  whenever  it  so  desires.  It  may  in  its  discretion 
demonetize  any  or  all  money  and  create  others.  It  may 
express  the  money  in  dollars,  francs,  pounds  or  such 
other  terms  as  it  may  select  or  invent.  It  may  make  the 
volume  large  or  small,  fixed  or  fluctuating.  It  may  adopt 


1 6  The  Other  Side  of  The  Money  Question. 

whatever  measure  or  system  it  deems  best  fitted  for  the 
issuing  and  regulating  of  the  money. 

Every  individual  or  corporate  employment  is  always 
conditional  upon  the  right  and  the  possibility  of  Con- 
gress making  changes  in  money  affairs. 


CHAPTER  II. 

EARLY  ENACTIONS  OF  CONGRESS  UPON  MONEY — FREQUENCY 
OF   CHANGES  —  PRESENT   VARIETIES   OF    MONEY   AND 
THEIR  DIFFERENT  LEGAL  POWER — SPECIFIC 
CONTRACTS  NO  OBSTACLE  TO  AC- 
TION .BY   CONGRESS. 

In  accordance  with  such  Constitutional  powers, 
Congress  has  from  time  to  time  enacted  many  different 
measures  and  made  many  changes  in  monetary  affairs. 

One  of  the  laws  passed  by  Congress  soon  after  the 
adoption  of  the  Constitution  was  to  provide  for  the  es- 
tablishment of  a  United  States  mint.  The  law  was 
passed  and  approved  by  President  Washington  in  April, 
1792.  Philadelphia  was  selected  as  the  location  and  the 
corner-stone  was  laid  the  same  summer,  such  building 
being  said  to  be  the  first  one  authorized  to  be  erected  for 
public  use  by  the  new  government. 

At  the  suggestion  of  Jefferson,  the  decimal  system 
of  accounting  was  adopted  by  Congress,  with  the  "dol- 
lar" as  the  "unit"  and  such  system  has  continued  un- 
changed to  the  present.  The  language  used  in  the  law 
establishing  such  system  is  highly  significant  and  cor- 
roborates the  view  that  those  in  charge  thoroughly  ap- 
preciated the  fundamentally  ideal  nature  of  money.  A 
section  of  the  law  says — 


1 8  The  Other  Side  of  The  Money  Question. 

"That  the  money  of  account  of  the  United  States 
shall  be  expressed  in  dollars,  or  units ;  dimes,  or  tenths ; 
cents,  or  hundredths;  milles,  or  thousandths;  a  disme 
being  the  tenth  part  of  a  dollar;  a  cent  the  hundredth 
part  of  a  dollar;  a  mille  the  thousandth  part. of  a  dollar; 
and  that  all  accounts  in  the  public  offices,  and  all  pro- 
ceedings in  the  courts  of  the  United  States,  shall  be  kept 
and  had  in  conformity  to  this  regulation." 

By  action  of  Congress,  gold,  silver  and  copper  were 
adopted  as  suitable  metals  to  use  in  providing  the  peo- 
ple with  a  representative  of  the  legal  ideal  money  Nof  ac- 
count, in  a  form  that  enabled  it  to  be  circulated  from 
hand  to  hand,  and,  with  many  halts  and  hitches,  such 
metals  have  been  continued  through  the  intervening 
years,  with  various  changes  respecting  the  quantity  oi 
such  metals  to  be  used  in  coining  a  prescribed  amount 
of  money  and  various  changes  in  the  legal  tender  power 
of  some  of  such  coins. 

Nickel  and  other  metal,  by  authority  of  Congress, 
have  also  been  used  to  some  extent  in  the  coinage. 
Changes  have  also  been  made  in  the  denominations  is- 
sued, such  as  the  non-coinage  of  silver  dollars  for  a  long 
period  of  years,  the  abandonment  of  the  gold  dollar 
issue,  'the  twenty  cent  piece  and  numerous  other  coins 
now  existing  only  in  collections.  It  would  require  much 
space  to  merely  enumerate  the  scores  of  changes  that 

have  been  made  in  the  metallic  coins  since  the  establish- 

& 

ment  of  the  Constitution. 


The  Other  Side  of  The  Money  Question.  19 

During  the  first  half  of  our  national  existence,  var- 
ious kinds  of  coin  of  other  nations  were  declared  a  legal 
tender  by  Congress.  Such  laws  were  quite  frequently 
enacted  and  not  finally  abandonee!  until  the  year  of  1857. 
The  paper  moneys  that  have  been  directly  and  indi- 
rectly issued  by  the  government,  or  under  governmental 
authority,  their  various  descriptions  and  legal  tender 
power,  the  many  measures  by  which  they  have  been  is- 
sued, the  various  processes  of  redemption,  retirement  or 
re-issuance,  the  many  measures  that  have  dealt  with  the 
various  kinds  of  so-called  "bank  note  currency,"  all  com- 
bine to  form  an  aggregate  that  would  be  tedious  to  de- 
tail. 

Leaving  the  history  of  the  monetary  changes  that 
Congress  has  made  from  the  date  of  the  Constitution 
and  coming  down  to  the  present  time,  we  find  that  there 
are  now  provided  by  law — 

Gold  Coin 

Gold  Certificates 

Silver  Coin 

Silver  Certificates 

United  States  Notes- 
Treasury  Notes 

National  Bank  Notes 

Subsidiary  Silver 

Minor  Coins. 

As  the  laws  are  to-day  these  moneys  have  many 
degrees  of  legal  power. 


2O  The  Otber  Side  of  The  Money  Question, 

Gold  Coin  is  a  full  legal  tender  for  all  public  and 
private  debts. 

Silver  Coin  is  a  full  legal  tender  except  when  other- 
wise expressly  stipulated  in  the  contract. 

United  States  Notes  are  a  full  legal  tender  for  all 
debts,  except  duties  on  imports  and  interest  on  the  pub- 
lic debt. 

Gold  and  Silver  Certificates  are  not  a  legal  tender, 
but  are  receivable  for  all  public  dues. 

The  National  Bank  notes  are  not  legal  tender,  but 
are  receivable  for  all  public  dues  except  duties  on  im- 
ports and  may  be  -paid  out  by  the  government  for  all 
salaries  and  other  debts  and  demands  owing  by  the 
United  States  to  individuals,  corporations  and  associa- 
tions within  the  United  States,  except  interest  on  the 
public  debt  and  in  redemption  of  the  National  Currency. 

The  Treasury  Notes  are  legal  tender  for  all  debts 
except  where  otherwise  expressly  stipulated  in  the  con- 
tract. 

Subsidiary  silver  and  minor  coins  are  legal  tender 
for  small  amounts  only. 

It  is  quite  important  that  we  fully  grasp  the  mean- 
ing of  the  law  when  it  says  that  one  money  is  legal  ten- 
der to  a  certain  extent  and  another  money  legal  tender 
to.  a  different  extent. 

On  every  hand  we  read  of  individuals  and  corpora- 
tions entering  into  so-called  "specific  contracts."  Though 
in  recent  years  the  usual  style  of  such  contracts  has 


The  Other  Side  of  The  Money  Question.  2  r 

been  "gold  coin,  of  present  weight  and  fineness,"  the  in- 
ference is  that  any  individual  or  corporation  could  make 
a  -binding  contract  payable  in  any  specific  money  that 
they  might  designate.  Though  we  have  already  consid- 
ered such  subject  to  some  extent,  it  will  do  no  harm  to 
treat  it  just  a  little  more  fully. 

As  a  matter  of  fact,  such  contracts  are  without  much 
standing  in  law  insofar  as  they  presume  to  be  specific 
and  -the  question  of  whether  they  will  be  legally  payable 
in  the  money  specified  depends  wholly  upon  the  chances 
of  that  form  of  money  being  a  legal  tender  at  date  of 
payment  and  whether  the  law  gives  the  debtor  any  op- 
tion to  pay  in  other  form  of  money. 

Apart  from  the  subsidiary  and  minor  coins,  the  onfy 
kinds  of  money  having  legal  tender  standing  to-day  in 
the  settlement  of  contracts  between  individuals  and  cor- 
porations are  gold  coin,  silver  coin,  United  States  notes 
and  Treasury  notes.  With  the  exception  that  National 
Banks  are  required  to  accept  National  Bank  notes  at 
par,  the  other  moneys  are  not  legal  tender  and  the  debtor 
could  not  be  compelled  to  pay  them  or  the  creditor  com- 
pelled to  accept  them  in  payment  for  any  money  con- 
tract. 

Suppose  that  A  entered  into  a  contract  with  B  in 
January,  1907,  by  which  he  agreed  to  pay  B  in  January, 
1908,  "one  hundred  dollars,  lawful  money." 

Such  contract  could  be  met  by  tendering  the  amount 
in  gold  coin,  silver  coin,  United  States  Notes  or  Treas- 


22  The  Otber  Side  of  The  Money  Question. 

ury  Notes,  or  a  combination  of  them,  at  the  option  of 
A.  B  would  have  to  accept  such  tender  or  be  without 
recourse. 

If  the  contract  read  "one  hundred  dollars,  gold  coin 
of  present  weight  and  fineness,"  A  could  tender  the  gold 
coin  if  he  felt  so  inclined,  but  he  could  also  tender  United 
States  Notes  and  B  would  have  to  accept,  for  they  are  a 
full  legal  tender  for  all  such  contracts.  A  could  not 
tender  silver  coin  or  Treasury  Notes  for  they  are  not 
legal  tender  when  otherwise  specified. 

If  the  contract  read  "one  hundred  dollars,  silver  coin 
of  present  weight  and  fineness,"  A  could  tender  silver 
coin  if  he  felt  so  inclined,  but  he  could  also  tender  gold 
coin  or  United  States  Notes.  He  could  not  tender  Treas- 
ury Notes,  for  they  are  not  legal  tender  when  otherwise 
specified 

If  the  contract  read  "one  hundred  dollars,  United 
States  Notes,"  A  could  tender  the  United  States  Notes 
if  he  felt  so  inclined,  but  he  could  also  tender  gold  coin. 
He  could  not  tender  silver  coin  or  Treasury  Notes;  for 
neither  ^are  legal  tender  when  otherwise  specified. 

If  the  contract  read  "one  hundred  dollars,  Treasury 
Notes,"  A  could  tender  the  Treasury  Notes  if  he  felt  so 
inclined,  but  he  could  also  tender  gold  coin  or  United 
States  Notes.  He  could  not  tender  silver  coin,  for  it  is 
not  legal  tender  when  otherwise  specified. 

Were  Congress  at  any  time  to  change  the  legal  ten- 
der laws,  the  contracts  would  have  to  be  adjusted  ac- 
cording to  the  change. 


The  Other  Side  of  The  Money  Question.  23 

For  instance,  if  Congress  was  to  take  away  all  legal 
tender  from  gold  coin,  silver  coin  and  Treasury  Notes 
and  lodge  it  exclusively  with  the  United  States  Notes, 
then  all  money  contracts,  regardless  of  specifications, 
become  payable  in  United  States  Notes,,  and  the  debtor 
could  not  be  compelled  to  pay  in  the  specified  money, 
nor  the  creditor  compelled  to  receive  the  specified 
money. 

At  the  risk  of  being  somewhat  tiresome  we  have 
thus  portrayed  money  in  its  legal  relations.  * 

There  is  great  need  for  a  thorough  understanding 
of  such  phase  of  the  subject,  for  there  is  a  widespread 
fallacious  impression  that  the  existence  of  a  great  vol- 
ume of  these  "specific  contracts"  stands  as  an  impassible 
barrier,  or  at  least  a  limitation  of  action  by  Congress. 

A  full  knowledge  of  the  actual  laws  upon  the  sub- 
ject, both  in  theory  and  practice,  will  demonstrate  that 
all  such  "specific"  features  will  not  in  the  least  degree 
hinder  Congress  in  making  whatever  changes  in  money 
that  it  may  deem  advisable  for  the  general  welfare. 

Congress  is  to-day  just  as  free  to  make  changes  as 
it  was  to  pass  any  laws  upon  the  subject  of  money  after 
the  adoption  of  the  Constitution. 

So  far  we  have  been  dealing  with  the  historical  and 
legal  phases  of  money  and  their  correctness  may  be 
amply  verified  by  the  public  records,  though  they  are 
opposite  and  hostile  to  some  "orthodox"  financial  opin- 


24  The  Other  Side  of  The  Money  Question. 

ions  held  or  maintained  by  a  goodly  number  of  our 
people. 

It  may  be  asked — If  the  law  relating  to  money  is 
so  clear  and  explicit  as  you  state,  and  it  is  not  directly 
denied,  why  is  there  a  "money  question"  at  all?  If 
Congress  is  conceded  to  be  the  rightful  body  to  issue 
money,  why  is  not  everyone  fully  in  favor  of  it  discharg- 
ing that  duty?  If  Congress  can  make  money  and  make 
it  legal  tender  why  does  it  not  do  so  and  settle  the  con- 
troversy? Why  is  the  controversy  kept  up  year  after 
year  without  getting  much  closer  to  a  solution  that 
would  place  the  money  question  in  the  category  of 
"closed  incidents"  instead  of  being  at  all  times  a  pres- 
ent question  of  such  magnitude  that  many  believe  it 
to  overwhelm  all  others  in  importance? 

To  answer  such  questions  it  will  be  necessary  to 
ascertain  what  has  interfered  with  or  obstructed  -the 
judgment  of  the  people  for  so  many  years  and  which 
continues  to  divide  them  into  so  many  contending  divi- 
sions that  progress  to  a  solution  is  so  exceedingly  slow 
and  difficult. 

Though  other  reasons  may  contribute  to  a  slight 
extent,the  one  great  central  reason  is  a  diversity  of  opin- 
ion as  to  what  is  money,  what  should  be  considered  as 
money,  and  therefore  the  subject  for  Congress  to  take 
charge  of.  i 


CHAPTER  III. 

LAW   DOES    NOT    DEFINE    MONEY  —  CONFUSION   OF   OPINION 
AS   TO   WHAT   IS    MONEY  —  ITS   TRUE   DEFINITION   AS   A 
FUNCTION — FUNDAMENTAL   HARMONY  OF  POPULAR 
AND    LEGAL    CONCEPTIONS  —  PUBLIC     PRIN- 
CIPLE   IN    MONEY    ONLY    APPLIED 
IN    LIMITED    MEASURE. 

The  Constitution  does  not  define  money  or  prescribe 
its  scope  of  action.  It  authorizes  Congress  to  issue  and 
regulate  it,  'but  it  does  not  say  how  much  or  how  little, 
or  in  any  manner  indicate  the  field  that  it  is  intended 
to  fulfill  in  the  affairs  of  the  nation. 

This  silence  upon  the  part  of  the  makers  of  the  Con- 
•situation  was  not  due  to  ignorance,  but  was  rather  a  re- 
sult of  their  intelligent  perception  of  the  true  nature  of 
the  subject  and  from  the  fact  that  those  men  recognized 
their  inability  to  forecast  either  the  extent  or  the  meth- 
ods of  the  development  that  the  nation  was  to  have  in 
after  years  and  of  course  could  not  have,  in  advance, 
prescribed  the  extent  or  the  precise  nature  of  the  money 
system  that  would  be  required  in  such  progress. 

They  treated  the  question  of  money  in  much  the 
same  manner  that  they  treated  other  powers  given  to 
Congress,  for  instance,  the  power  to  create  and  maintain 
a  navy.  The  Constitution  makers  did  not  attempt  to 
define  the  navy,  say  how  many  vessels  it  should  consist 


26  The  Other  Side  of  The  Money  Question. 

of:  whether  they  be  made  of  metal  or  wood:  sailing  or 
steam  vessels;  side-wheeler,  stern-wheeler  or  screw  pro- 
pellors ;  light  or  heavily  armed ;  shallow  or  deep  draught, 
etc. 

Many  things  now  considered  necessary  to  a  well 
kept  navy  were  unheard  of  in  those  days  and  the  assur- 
ance of  a  progressive  development  was  likewise  in  the 
case  of  money,  ample  justification  to  omit  details  that 
would  more  properly  belong  to  the  legislative  field  of 
Congress. 

If  we  turn  to  the  works  of  the  "orthodox"  econo- 
mists for  light,  we  find  that  they  are  in  endless  confusion 
and  contradiction.  Hardly  two  of  them  give  even  ap- 
proximately the  same  views. 

Some  have  held  that  coined  gold  alone  is  money. 
Others  have  held  that  both  coined  gold  and  silver  con- 
stitute the  money.  Others  have  held  that  various  kinds 
of  circulating  certificates,  bank  notes,  etc.,  ought  to  be 
considered  as  being  a  part  of  the  money.  But  this  view 
is  denied  as  strenuously  by  others,  who  have  made  a 
distinction  between  what  they  call  "primary"  or  "stan- 
dard" money  and  what  they  call  "currency." 

The  last  mentioned  school  in  general  teaches  that  it 
is  right  and  proper  for  the  government  to  issue  the  "prf- 
mary"  or  "standard"  money,  but  that  it  is  not  within  its 
rightful  province  to  issue  "currency,"  but  that  it  should 
be  issued  by  private  individuals  or  corporations,  under 


The  Other  Side  of  The  Money  Question.  27 

some  form  of  more  or  less  stringent  regulation  by  the 
government. 

There  are  others  who  contend  that  the  term 
"money"  can  alone  be  applied  to  that  which  is  legal  ten- 
der, that  it  does  not  become  money  until  such  power  is 
given  and  that  it  ceases  to  foe  money  when  such  power 
is  taken  away. 

The  orthodox  economists  in  generaj  seem  to  have 
no  possible  escape  from  their  confusions  and  contradic- 
tions, as  their  contentions  are  based  upon  arbitrary  as- 
sum'ptions  which  preclude  the  consideration  of  their  po- 
sitions from  any  common  view-point. 

Ask  the  people,  individually  to  write  or  state 
what  they  think  is  money  and  they  will  be  found  to  be 
of  the  utmost  diversity  of  opinion,  dividing  very  much 
along  the  same  lines  as  the  economists  are  divided.  It 
is  quite  natural  that  a  teaching  of  confused  views  by  the 
economists  would  result  in  the  people  having  the  same 
confusion  of  views  to  a  large  extent. 

Is  there  then  no  common  grounds  by  which  to  as- 
certain just  what  should  be  considered  as  money? 

The  altitude  of  any  point  on  the  surface  of  the  earth 
is  reckoned  from,  sea-level,  with  the  approval  of  all.  Is 
there  anything  of  an  analogous  nature  by  which  we  can 
arrive  at  a  true  determination  of  what  should  be  consid- 
ered as  money? 

Yes,  -there  is  such  a  test,  and  strange  as  it  may 
seem,  we  find  it  in  universal  application  in  every  day 


28  The  Other  Side  of  The  Money  Question. 

life  and  in  every  business  transaction  involving  money. 
Even  the  economists  all  accept  and  employ  such  analogy 
in  everything  they  do,  except  in  their  financial  writings 
and  teachings. 

On  every  hand  people  speak  of  "working  for  money," 
"selling  goods  for  money,"  "paying  money,"  "borrow- 
ing money  on  a  note  or  mortgage,"  "issuing  bonds  for 
money.,"  etc.,  in  blissful  disregard  of  the  fact  that  in  the 
vast  bulk  of  cases  hardly  a  single  dollar  of  gold  coin, 
silver  coin,  United  States  Notes,  Treasury  Notes,  or  any 
of  the  circulating  certificates  or  bank  notes,  (compris- 
ing the  range  of  money  as  usually  outlined  by  the  eco- 
nomists) is  actually  handled  or  even  transferred. 

In  the  world  of  business  "money"  often  becomes 
"scarce,"  "tight"  or  even  a  "famine"  while,  according  to 
the  definitions  of  the  economists,  it  could  be  mathemati- 
cally proven  that  it  was  more  plentiful  than  ever.  Con- 
trariwise, money  often  becomes  "plentiful,"  "easy"  or 
even  a  "surplus,"  while,  according  to  the  economists,  it 
could  be  mathematically  proven  that  it  was  much  scarcer 
than  ever. 

It  is  a  common  expression  of  much  truth  that  ninety- 
five  per  cent  of  all  business  transactions  are  not  made 
with  any  of  such  forms  of  money,  yet  the  people  univer- 
sally speak,  think  and  believe  them  to  be  money  trans- 
actions. 

Either  the  people,  (including  the  economists  as  in- 
dividuals) must  all  be  mistaken,  or  the  economists  have 


The  Other  Side  of  The  Money  Question.  29 

been  using  the  term  "money"  in  a  far  too  restricted 
meaning  and  that  a  real  definition  of  money  would  be 
broad  enough  to  cover  the  field  of  money  transactions 
as  the  people  meet  them  in  every-day  life  and  business. 
Thus  we  have  a  popular  conception  of  "money"  that  is 
vastly  beyond  the  general  teachings  of  the  professed 
economists. 

Though  perhaps  quite  unconsciously,  the  popular 
conception  of  money  is  almost  identical  with  the  views 
held  by  those  who  framed  the  Constitutional  provisions 
on  money  and  who  drafted  the  first  laws  dealing  with 
money  under  the  Constitution,  namely — That  money  is 
a  function  rather  than  a  material  thing. 

Francis  A.  Walker,,  one  of  the  more  advanced  econ- 
omists, sounds  the  public  definition  when  he  says :  j 

"The  sole  test  of  money  is  the  performance  of  the 
money  function.  As  has  been  said,  that  which  does  the 
money-work  is  the  money-thing.  If  it  does  this  work 
well,  it  is  good  money;  if  it  does  this  work  ill,  it  is  bad 
money." — Political  Economy,  Page  155. 

Such  a  definition  is  thoroughly  in  harmony  with  the 
popular  use  of  the  term  "money"  but  it  is  vastly  differ- 
ent from  the  views  of  those  economists  who  interpret 
it  in  a  restricted  form. 

Here  and  there  in  the  teachings  of  the  economists  a 
faint  glimmer  of  the  broad  construction  of  money  breaks 
through  the  darkness,  but  the  thought  is  not  apparently 
considered  worthy  of  development  and  the  entire  subject 


3o  The  Other  Side  of  The  Money  Question. 

is  generally  evaded  or  shunned  as  if  it  were  a  deadly 
plague. 

If  ^this  broad  construction  is  true,  it  discloses  that 
the  economists,'  while  pretending  to  outline  or  discuss 
the  system  of  money,  have  in  reality  been  taking  into 
consideration  but  a  very  small  portion  of  the  factors  in- 
volved, and  consequently  have  not  even  approached  to 
a  satisfactory  solution. 

They  who  would  solve  the  question  of  money  by 
ignoring  a  majority  of  the  factors  involved  and  doing 
the  money-work,  are  somewhat  in  the  predicament  of 
one  who  would  try  to  keep  the  cold  winds  out  of  his 
house  by  keeping  one  certain  window  in  good  condition, 
closing  his  eyes  to  the  evident  fact  tftat  there  were  many 
others,  equally  large,  that  were  wholly  broken  away. 

In  the  early  history  of  money,  and  even  at  the  time 
of  the  adoption  of  the  Constitution,,  the  limited  definition 
of  the  present-day,  economists  was  somewhat  parallel 
to  the  popular  conception,  and  might  have  been  applied 
with  approximate  accuracy.  That  which  they  now  de- 
fine as  money  occupied  practically  the  entire,  or  at  least 
the  major  portion  of  the  field  of  mone}^-work  in  those 
days. 

But  with  the  marvelous  growth  and  multiplicity  of 
exchange  in  the  past  century,  with  the  introduction  of 
so  many  exchanges  requiring  long  periods  of  time  to 
fully  accomplish,  the  field  rapidly  passed  from  one  that 
could  be  covered  by  such  limited  construction  of  money, 


The  Other  Side  of  The  Money  Question.  3 1 

until  to-day  the  money  of  the  orthodox  economists  and 
the  money  of  the  Constitutional  times  occupy  but  a  very 
small  portion  of  the  monetary  field  and  do  a  very  small 
proportion  of  the  monetary  work. 

In  the  face  of  a  great  advance  in  all  lines  of  pro- 
duction, which  requires  a  like  advance  in  the  function  of 
exchange,  the  government  continues  to  restrict  itself  to 
an  application  of  the  public  principle  of  money  that 
would  perhaps  be  suitable  to  the  exchanges  of  the  Con- 
stitutional days,  but  is  wholly  inadequate  for  that  of 
the  present. 

The  public  service  not  keeping  pace  with  the  de- 
mand, such  field  has  been,  from  necessity,  very  largely 
invaded  and  supplied  in  numerous  forms,,  by  private  in- 
dividuals and  corporations,  but  such  service  has  not 
been  altogether  satisfactory,  as  the  ever-present  "money 
question"  bears  positive  evidence. 

The  public  principle  of  money  should  be  applied  in 
a  manner  broad  enough  to  bring  within  its  scope  the 
greatest  practicable  quantity  of  that  .which  does  the 
money  work.  In  such  way  only  can  the  government 
fully  exercise  the  right  to  issue  and  regulate  money  and 
the  exercise  of  such  power  to  the  greatest  practicable  ex- 
tent is  the  supreme  money  question  of  the  day,  and  such 
question  will  only  become  solved  in  the  best  interests  of 
the  people  and  to  such  extent  as  the  money  service  of  the 
country  becomes  public  in  fact  as  well  as  in  theory. 

In  comparison  with  such  real  money  question,  that 


32  The  Other  Side  of  The  Money  Question. 

will  call  louder  and  louder  for  equitable  solution, 
all  those  incidental  questions  of  money  that  have 
been  brought  forward  in  the  past  few  years  and 
still  absorb  a  large  part  of  public  attention,  such  as  the 
relative  merits  of  bimetallism  and  monometallism,  'the 
National  Bank  Currency,  the  "Greenbacks,"  the  emer- 
gency currency,  the  asset  currency,  postal  savings  banks, 
the  guarantee  of  deposits,  etc.,  while  of  some  import 
as  matters  of  detail,  become,  as  solutious,  in  like  propor- 
tion as  an  ant-hill  is  to  the  mountain. 

Their  principal  bearing  upon  the  money  question 
is  in  proportion  as  they  aid  or  hinder  in  the  work  of 
placing  money  upon  a  public  basis  and  yet  that  fact  is 
seldom  adduced  as  an  argument  and  sometimes  directly 
denied. 

Public  attention  is  kept  distracted  by  such  rela- 
tively minor  matters,  while  the  great  central  question, 
of  which  they  should  be  but  contributory,  is  overlooked 
and  ignored  and  cannot  even  yet  get  a  fair  hearing  in 
the  customary  avenues  of  public  discussion. 

In  recent  years,  however,  there  has  been  a  steady 
growth  of  conviction  and  expression  that  the  money 
troubles  are  of  far  deeper  nature  and  importance  than 
indicated  by  the  minor  character  of  the  monetary  meas- 
ures which  have  been  absorbing  the  bulk  of  public  at- 
tention and  a  feeling  that  the  settlement  of  any  or  all  of 
such  questions,  along  the  lines  usually  proposed,  even  if 
they  would  do  everything  their  advocates  'believed, 


The  Other  Side  of  The  Money  Question.  33 

would  still  fall  far  short  of  solving  the  real  vital  money 
question. 

The  most  advanced  and  most  logical  monetary 
thought  of  the  day  has  been  steadily  pushing  its  course 
along  those  lines  and  in  the  not  distant  future  is  at  least 
possible  that  such  school  of  monetary  thought  will  make 
such  rapid  progress  as  will  ultimately  effect  a  complete 
re-organization  of  the  monetary  systems  of  the  world. 

But  as  this  speculating  upon  what  is  to  be,,  or  ought 
to  be,  or  may  be,  is  purely  a  matter  of  opinion  and  judg- 
ment, in  which  all  might  find  equal  cause  for  alarm  or 
solace,  let  us  leave  it  and  return  to  the  more  immediate 
question  under  discussion. 

Money  has  by  different  writers  been  likened  to  a 
mechanism  and  the  illustration  is  quite  a  good  one. 

Let  us  examine  the  constituents  of  such  mechanism 
as  it  exists  to-day,  collect  all  of  the  important  factors, 
and  thereby  not  only  form  a  clearer  idea  of  its  magni- 
tude,, but  get  a  better  realization  of  the  utmost  import- 
ance of  having  such  mechanism  made  thoroughly  public 
in  fact,  to  the  utmost  extent  that  such  result  is  practi- 
cable. 


CHAPTER  IV. 

GOVERNMENT    REPORTS    OF    TOTAL    MONEYS  —  FIRST    AND 
SECOND   DIVISIONS   OF  EFFECTIVE  MECHANISM — METH- 
OD OF  MAKING  LARGE  DEPOSITS  AND  LOANS  UPON 
A    RESERVE  —  WHY    BANKS   ARE   ANXIOUS 
TO  RETAIN  THEIR  CASH  ON  HAND. 

In  the  U.  S.  Statistical  Abstract  for  1906,  pages  111 
and  112,  we  find  the  following  statistics  of  the  various 
kinds  of  money  in  circulation  and  in  the  Treasury  on 
July  1,  1906— 

In  Circulation. 

Gold  Coin    .' $668,655,075.00 

Silver   Coin    77,001,368.00 

Subsidiary  Coin   111,629,504.00 

United   States   Notes    335,940,220.00 

Treasury  Notes    7,337,320.00 

National  Bank  Notes   548,001,238.00 

Silver   Certificates    471,520,054.00 

Gold   Certificates    516,561,849.00 


Total    $2,736,646,628.00 

Estimated   population    84.662,000 

Circulation  per  capita   $32.32  * 

In  the  Treasury. 
Gold  Coin  and  Bullion   ....$246,991,821.00 

Silver   Coin    6,391,162.00 

Subsidiary  Coin    6,595,416.00 

United   States   Notes    10,740,796.00 

Treasury  Notes 48,680.00 

National  Bank  Notes   13,,  11 1,122.00 


Total   $283,878,997.00 


The  Other  Side  of  The  Money  Question.  35 

The  summary  on  page  113  of  the  abstract  gives  a 
total  of  $333,329,963.00  in  the  Treasury.  After  vainly 
trying  to  locate  the'  discrepancy  the  writer  wrote  to  the 
Treasury  Department  for  information.  The  inquiry  was 
referred  to  the  Bureau  of  Statistics  for  investigation  and 
reply  was  received  to  the  effect  that  clerical  errors  were 
responsible  for  a  large  understating  of  the  amounts  of 
gold  and  silver  held  in  the  Treasury  and  that  the  cor- 
rected figures  were  as  follows : — 

In  the  Treasury. 
Gold  Coin  and  Bullion    ....$290,489,841.00 

Silver   Coin    12,344,108.00 

Subsidiary  Coin    6,595,416.00 

United   States   Notes    10,740796.00 

Treasury  Notes    48,680.00 

National  Bank  Notes   13,111,122.00 


Total   $333,329,963.00 

The  Treasury  Department  has  in  its  vaults  a  much 
larger  amount  of  gold  and  silver  than  given  above  but 
the  additional  amount  is  simply  held  for  the  redemption 
of  corresponding  gold  and  silver  certificates  in  circula- 
tion and  the  government  reports  rightly  hold  that  it 
would  be  erroneous  to  include  it  in  both  columns,  so 
the  totals  stand: 

In    circulation    $2,736,646,628.00 

In  the  treasury 333,329.963.00 

However  the  Treasury  Department  figures  for  the 


36  The  Other  Side  of  The  Money  Question. 

amount  of  money  in  the  Treasury  are  calculated  upon 
the  'balance  it  has  to  its  credit  and  does  not  take  cogni- 
zance of  the  fact  that  a  part  of  such  balance  is  not  act- 
ually held  in  'the  Treasury  vaults,  but  is  deposited  else- 

> 
where. 

The  report  of  the  Comptroller  of  the  Currency  for 
1906,  page  10,  dated  June  18,  gives  the  following: — 

Government  Deposits  in  National  Banks.  .$80,922,909.92 
Deposits  of  U.  S.  disbursing  officers  .  8,987,085.03 

Total    $89,909,994.95 

That  amount  should  be  subtracted  from  the  amount 
of  Treasury  balance  and  added  to  the  amount  in  circu- 
lation. The  figures  thus  revised  to  accord  with  the  actual 
condition  would  be  as  follows : — 

In    circulation    $2,826,556,622.95 

In  the  Treasury  243,415,968.00 

Since  the  date  of  the  report  the  government  depo- 
sits in  National  Banks  have  been  increased  to  such  an 
extent  that  practically  the  entire  Treasury  balance  is  so 
deposited,  but,  as  we  do  not  have  uniform  statistics  for 
a  later  date,  the  inquiry  throughout  will  be  confined  to 
the  date  of  the  report,  or  as  near  such  date  as  the  var- 
ious departments  date  their  reports. 

The  money  then  actually  held  in  the  Treasury, 
$243,415,968.00  in  amount,  was  practically  dead  or  dor- 
mant, not  doing  any  of  the  money-work  of  the  country, 
though  of  course  it  was  available  for  such  work  when 


The  Other  Side  of  The  Money  Question.  37 

the  government  would  so  decide.  But  practically  it  was 
for  the  time  non-existent  as  a  part  of  the  money-mech- 
anism, just  as  if  it  had  been  destroyed  by  fire  or  lost 
in  the  depths  of  the  ocean. 

The  "money  in  circulation"  as  the  Treasury  De- 
partment so  labels  all  money  not  in  the  Treasury,  we 
have  seen  was  $2,826,556,622.95  but  this  amount  is  ad- 
mitted to  be  largely  overstated,  as  it  includes  vast  sums 
that  have  been  lost  or  destroyed  by  fires,  floods  or  other 
accidents  that  have  eliminated  it  as  money  and  vast 
sums  of  coin  that  have  been  melted  and  used  in  the  arts, 
etc.  The  amount  that  could  fairly  be  subtracted  from 
the  gross  total  in  circulation  is  hardly  capable  of  ascer- 
tainment, but  there  is  little  doubt  that  it  mounts  into 
the  hundreds  of  millions  of  dollars. 

But  as  the  absence  of  data  renders  it  impossible  to 
make  accurate  calculation,  let  us  approach  the  subject 
from  a  different  direction  and  find  out,  as  best  we  can, 
just  where  and  to  what  amounts  we  can  locate  the 
"money  in  circulation/' 

Referring  to  the  Report,  page  50,  date  of  June  18, 
1906,  we  find  that  there  was  held  by  6,053  National 
Banks  and  11,852  other  banks  and  bankers  reporting, 
money  as  follows  : — 

Gold  Coin    $158,294,060.00 

Gold  Certificates    329,998,217.00 

Silver  Coin    34,455,398.00 

Silver  Certificates    101, 280,,1 57.00 


38  The  Other  Side  of  The  Money  Question. 

Legal  tenders  (U.  S.  and 

Treasury  Notes)    262,263,412.00 

National  Bank  Notes  37,664,741.00 

Cash    (not  classified)    81,571,681.00 

Fractional,  unclassified  specie, 
Spanish  notes  and  Philip- 
pine currency  10,920,556.00 

Total    $1,016,448,222.00 

Less  amount  held  by 
banks  in  island  possessions.  .5,661,868.00 


Held  by  all  banks  and 
bankers  reporting  in  the 
United   States    $1.010,786,354.00 

This  sum  practically  comprises  all  the  publicly 
known  large  volumes  of  the  money  in  circulation.  The 
remainder  is  presumed  to  be  deposited  in  safety  vaults, 
the  tills  and  safes  of  merchants,  in  the  pockets  of  the 
people,  in  trunks,  old  stockings,  stoves,  or  in  other  form 
of  more  or  less  safe  hoarding  place,  or  it  has  become  lost, 
destroyed  or  otherwise  eliminated  as  money. 

The  volume  remaining  in  such  miscellaneous,  un- 
known and  un-ascertainable  whereabouts  is  larger  than 
the  volume  definitely  located,  being  $1,815,770,268.00. 

It  being  practically  impossible  to  arrive  at  a  fair 
idea  of  the  real  amount  that  is  in  actual  existence  out- 
side of  the  Treasury  and  all  reporting  banks  and  bank- 
ers, for  the  purpose  of  this  investigation  we  will  accept 


The  Other  Side  of  The  Money  Question.  39 

the  gross  figures  given  and  consider  the  entire  amount 
as  in  actual  existence. 

A1J  the  money  in  hand  to  hand  circulation  among 
the  people,  whether  coin  >or  paper,  the  money  of  most 
retail  and  minor  transactions,  belong  to  such  volume.  It 
is  doing  money-work  and  consequently  is  a  part  of ?  the 
money-mechanism  of  the  country. 

This  is  the  first  grand  division  of  the  money  mech- 
anism. It  is  a  very  large  sum  but  at  its  maximum 
limit  it  is  of  paltry  insignificance  when  compared  with 
the  total  of  money  mechanism  in  use. 

The  second  grand  division  of  the  money  mechanism 
consists  of  that  portion  of  the  deposits  in  the  banks  that 
are  used  as  "checking  accounts"  by  the  depositors. 

The  author  does  not  have  data  respecting  the  vol- 
ume of  that  portion  of  the  total  bank  deposits  that  the 
depositors  generally  consider  and  employ  as  "checking 
accounts-"  and  can  therefore  submit  only  as  an  estimate, 
that  one-fourth  of  the  total  amount  is  so  used. 

According  to  the  Controller's  Report,  page  52,  the 
aggregate  deposits  in  all  banks  were  as  follows: 

National    Banks    $  4,054:677,5 58.00 

State  Banks    2,722,922,028.00 

Savings    Banks    3,299,544,601.00 

Private  Banks    109,947,509.00 

Loan  &  Trust  Companies     2,008,937790.00 


Total   $12,196,029,486.00 


4O  The  Other  Side  of  The  Money  Question. 

One-fourth  of  the  total  deposits  would  give  $3,049,- 
007,371.00  as  the  sum  of  "checking  accounts,"  the  second 

grand  division  of  the  money  mechanism. 

» 

These  accounts  are  being  transferred  back  and  forth 
continually,  though  with  much  difference  of  rapidity 
with  persons  engaged  in  different  lines  of  industry. 

Those  working  for  stated  money  wage,  as  a  rule,  do 
not  have  occasion  to  "check"  as  much  or  as  often  as 
those  engaged  in  buying  and  selling  goods,  etc.,  where 
the  checking  account  of  the  individual  is  subject  to  wide 
and  frequent  variations. 

In  every  respect  the  depositors  use  those  accounts 
just  the  same  as  if  they  were  cash  in  their  pockets,  rather 
than  a  credit  on  the  bank's  books,  supported  by  a  mar- 
gin of  cash ;  and  insofar  as  the  banks  can  calculate  upon 
the  average  amount  of  all  such  checking  deposits  that 
will  remain  with  them,  the  banks  treat  them  just  the 
same  as  if  they  were  "time  deposits." 

These  accounts  are  in  a  constant  transfer  of  owner- 
ship as  they  are  "checked"  around  in  payment  for  all 
kinds  of  exchanges  and,  while  thus  changing  owners 
often  and  under  normal  business  conditions  always  left 
in  the  banks,  during  stress  of  financial  disturbance  the 
depositors  keep  a  large  portion  of  cash  on  hand  them- 
selves, and  in  that  way  seriously  reduce  the  aggregate 
sum  that  the  banks  would  otherwise  have  to  work  upon. 

So  long  as  such  deposits  are  left  in  the  banks,  they 
do  double  duty,  as  they  are  being  checked  from  one  to 


Tbt  Other  Side  of  The  Money  Question.  41 

the  other,  and  at  the  same  time  being  used  by  the  banks 
as  a  basis  for  loans  and  discounts. 

The  volume  of  the  mechanism,  as  we  have  so  far 
considered  it,  is  of  the  following  proportions: 

First  Division— Circulating  cash    $1,815,770.268.00 

Second    Division— Checking   accounts..   3,049,007,371.00 

Total   $4,864777.639.00 

Large  as  is  the  sum,  it  still  represents  but  a  very 
small  proportion  of  the  total  volume  of  money  mech- 
anism. 

Before  continuing  our  investigation  into  the  volume 
of  the  money  mechanism,  it  may  not  be  inopportune  to 
explain  how  the  banks  could  have  deposits  of  $12,196,- 
029,486.00  when  they  only  had  $1,010,786,354.00  to  work 
upon,  and  at  the  same  time  explain  how  the  banks  could 
loan  out  the  large  sum  of  $9.893,700,000.00  to  borrowers, 
(see  Controllers  Report,  page  34.) 

The  banks  carry  about  $12.00  of  deposits  and  $10.00 
of  loans  and  discounts  for  every  dollar  of  cash  -they  have 
on  hand. 

With  many  who  approach  the  subject  for  the  first 
time,  it  is  somewhat  difficult  to  understand  how  such  a 
large  volume  of  deposits  and  loans  can  be  carried  when 
there  is  only  a  fraction  of  -that  amount  of  cash  to  work 
upon.  The  subject  is  simple  to  those  familiar  with  the 
process,  but  it  is  rather  obscured  to  those  unacquainted 
with  it. 


42  The  Other  Side  of  The  Money  Question. 

If  the  banks  simply  accepted  money  on  deposit  and 
stored  it  away  in  their  vaults  until  the  depositor  called 
for  it,  it  is  obvious  that  the  "deposits  subject  to  check" 
would  be  the  same  amount  as  the  "cash  on  hand,"  and 
that  the  banks  would  not  have  any  loans. 

The  banks  would  be  the  loser  under  such  an  ar- 
rangement to  the  extent  of  the  expenses  and  as  banks 
are  not  usually  run  as  philanthropies  of  course  no  pri- 
vate persons  or  corporations  would  embark  in  the  bank- 
ing business. 

However,  the  banks,  under  authority  of  law,  are 
required  to  keep  or  store  away  but  a  small  portion  of 
the  deposit,  in  cash,  and  are  permitted  to  loan  out  the 
balance  to  those  desiring  to  borrow  it,  which  loan,  in 
the  ordinary  course  of  business,  again  becomes  a  depos- 
it in  the  banks,  the  operation  being  repeated  again  and 
again,  each  operation  tending  to  increase  the  total  of 
deposits,  loans  and  reserve  required  by  law. 

We  will  suppose  that  one  dollar  in  cash  is  deposited 
in  a  National  bank.  Such  'banks  are  best  suited  for  illus- 
tration, as  they  are  uniform  throughout  the  country, 
while  each  state  has  different  regulations  for  other 
banks.  The  law  requires  National  banks  to  keep  fifteen 
per  cent  reserve  in  banks  of  non-reserve  cities  and 
twenty-five  per  cent  in  reserve  city  banks.  If  the  depos- 
it is  made  in  a  non-reserve  city,  the  banks  must  set 
aside  fifteen  cents  and  can  loan  out  the  balance.  The 
first  statement  of  the  operation  would  be  as  follows: 


The  Other  Side  of  T"he  Money  Question.  43 

Deposits  $1.00,  loans  85  cts,  reserve  15c. 

This  loan  of  .85  if  taken  out  of  the  bank  in  cash,  say 
by  Jones  and  paid  to  Smith,  becomes  in  turn  a  deposit 
by  Smith  or  someone  else  to  whom  he  may  have  paid  it. 
As  a  matter  of  practice,  little  money  is  carried  away 
from  the  banks,  as  most  business  operations  are  carried 
on  by  "checking"  or  transferring  the  account.  The  prin- 
ciple is  the  same  either  way,  the  usual  practice  saving 
the  trouble  and  risk  of  handling  the  cash. 

When  the  .85  becomes  deposited,  the  bank  retains 
fifteen  per  cent  (.12^4)  and  loans  out  the  balance 
(.72*4).  The  bank  statement  would  then  read: 

Deposits  $1.85.     Loans  $1.57^.     Reserve  .27^4. 

This  process  carried  out  a  number  of  times  finally 
results  in  the  dollar  all  being  in  the  reserve  fund  and 
the  deposits  and  loans  reaching  to  relatively  large  pro- 
portions. The  bank  statement  would  then  read: 

Deposits  $6.66.     Loans  $5.66.  Reserve  $1.00. 

This  result  is  not  simply  a  possible  or  probable  one, 
but  it  quite  accurately  depicts  the  actual  condition  of 
banks  under  what  is  called  a  normal  state  of  banking. 

The  state  banks,  savings  banks,  private  banks  and 
trust  companies  are  conducted  along  the  same  principle, 
but  there  is  no  uniformity  in  those  of  different  states. 
As  a  whole  they  are  not  required  to  keep  as  large  a  por- 
tion in  reserve  as  National  banks  and  this  makes  the 
average  reserve  of  all  much  lower  than  would  be  indi- 
cated by  the  National  banks  alone. 


44  The  Other  Side  of  The  Money  Question. 

The  Report,  page  52,  says : 

"The  percentage  of  cash  to  deposit  held  by  banks 
other  than  National  appear  to  be  less  than  one-fourth 
the  percentage  held  by  National  Banks,  such  holdings 
being  16.80  per  cent  by  National  Banks  and  an  average 
of  4.04  per  cent  by  all  other  banks." 

While  considering  the  manner  in  which  loans  are 
made  by  banks,  it  is  well  to  remember  that  even  under 
ordinary  banking  conditions,  in  communities  where  there 
may  be  several  competing  banks,  each  bank,  before  mak- 
ing loans,  endeavors  to  ascertain  if  the  loan  is  to  be 
withdrawn  in  cash  or  left  in  the  bank  and  checked  over 
to  others  who  would  still  leave  it  in  the  bank. 

If  the  prospective  loan  is  to  be  withdrawn  in  cash, 
the  bank  will  often  refuse  to  make  it,  though  the  secu- 
rity be  first-class  and  the  bank  be  perfectly  willing  to 
make  the  loan  if  it  is  not  to  be  withdrawn  in  cash. 

In  such  cases  the  bank  officials  are  not  actuated  so 
much  by  a  fear  that  the  money  so  withdrawn  will  not  be 
re-deposited  in  some  bank,  as  by  a  fear  that  their  partic- 
ular bank  may  not  get  their  share,  as  re-deposits,  of 
such  loans  as  are  withdrawn  from  the  various  banks. 

Consequently  the  business  prudence  of  each  impels 
it  to  remain  on  the  safe  side  by  not  passing  the  cash 
over  its  counter,  thus  favoring  the  applicants  .for  loans 
who  will  not  withdraw  in  cash.  Each  bank  endeavors 
to  "hold  on"  to  all  the  cash  it  has  and  competes  to  get  a 
larger  portion  of  that  which  other  banks  let  go  of. 


The  Other  Side  of  The  Money  Question.  45 

If  'the  prospective  borrowers,  with  first-class  security 
behind  them,  who  intend  to  draw  out  the  loan  in  cash, 
would  carefully  analyze  the  effect  upon  the  bank's  busi- 
ness of  the  losing  of  a  portion  of  its  cash  on  hand,  it 
would  often  reveal  the  real  reason  for  many  "unaccount- 
able'' refusals  to  be  "accommodated." 

As  the  several  banks  in  a  community  thus  compete 
among  themselves  for  the  cash,  so  every  movement  to 
take  cash  out  of  the  community  is  of  vital  concern  to 
them  as  a  whole,  for  it  may  for  a  time  at  least  take  away 
the  basis  necessary  for  the  loans  and  discounts  of  all' the 
banks  in  the  community. 

In  -the  National  field  we  find  an  evidence  in  the  feel- 
ings of  anxiety  attendant  upon  any  considerable  expor- 
tation or  importation  of  gold,  not  because  the  movement 
would  amount  to  much  as  a  commodity,  but  because  the 
present  system  enables  gold  to  be  at  will  transferred 
into  money,  and  that  such  movement  would  mean  either 
losing  the  basis  for  a  large  volume  of  loans  and  discounts, 
or  the  securing  of  additional  basis  to  expand  the  loans 
and  discounts. 


CHAPTER  V. 

LOANS   OF   BANKS   AS   THE   THIRD   DIVISION — INJURY  OF  UN- 
CALLED  FOR   FLUCTUATIONS  IN  VOLUME — BONDS  AND 
MORTGAGES  RENDERED  POSSIBLE  BY  TRANSFERS 
OF  BANK  DEPOSITS  AS  THE  FOURTH  AND 
LARGEST  DIVISION  OF  EFFECT- 
IVE   MECHANISM. 

The  third  grand  division  of  the  money  mechanism 
consists  of  the  loans  and  discounts  of  all  the  banks. 

As  noted  in  previous  chapter,  'the  loans  and  dis- 
counts amounted  to  the  sum  of  $9,893,700,000.00. 

This  vast  sum  is  practically  all  in  active  use  doing 
money-work.  It  is  costing  interest  and  the  borrowers 
would  not  keep  it  out  unless  it  was  being  used.  It  is 
being  transferred  back  and  forth,  paying  debts  and  bills 
of  every  kind  and  aiding  in  all  kinds  of  exchanges  in 
much  the  same  manner  as  the  "hand  to  hand"  moneys 
of  the  first  division,  though  in  a  field  dealing  more  in 
larger  amounts.  It  is  an  extremely  important  division 
of  the  money  mechanism. 

Though  five  times  the  volume  of  the  first  division, 
it  is  almost  impossible  to  get  the  third  division  of  the 
money  mechanism  fairly  discussed  by  the  orthodox  ban- 
kers, financiers  and  economists,  and  they  especially 
avoid  all  discussion  if  the  other  party  to  the  controvery 
wishes  to  discuss  it  in  the  light  of  fulfilling  the  same 
general  mission  as  the  hand  to  hand  circulating  moneys 


The  Other  Side  of  The  Money  Question.  47 

and  therefore  equally  necessary  to  be  placed  under  gov- 
ernmental regime  as  far  as  practicable. 

Every  argument  in  favor  of  the  governmental  issue 
and  regulation  of  the  circulating  moneys  applies  with 
equal  force  to  the  vast  bulk  of  the  loans  and  discounts 
of  banks.  If  it  is  wise  for  the  public  to  issue  and  regu- 
late the  moneys  of  the  first  division,  it  would  be  equally 
wise  for  the  public  to  issue  and  regulate  that  vast  field 
of  money  mechanism  that  has  arisen,  since  the  adoption 
of  the  Constitution,  in  the  form  of  "loans  and  discounts." 

Viewed  in  the  light  of  the  effect  that  such  loans  and 
discounts  have  upon  the  value  and  stability  of  other 
moneys,  it  will  be  found  imperative  to  control  that  field 
in  order  to  keep  the  other  money  at  a  fairly  stable  ex- 
change value,  when  compared  with  general  property 
and  products.  It  will  be  impossible  to  maintain  any 
money  at  a  stability  so  long  as  private  individuals  or 
corporations  can  exercise  the  arbitrary  power  of  making 
the  volume  of  loan  and  discount  money  large  or  small, 
as  their  interests  may  dictate,  without  regard  to  the  le- 
gitimate needs  and  demands  of  the  public  in  general. 

The  truth  of  that  statement  will  be  apparent  to  all 
those  who  will  for  a  moment  consider  the  possible  re- 
sults if  the  banks  would,  in  concert,  reduce  their  dis- 
counts to  a  large  degree,  or  expand  them'to  hitherto  un- 
known proportions.  Such  actions  are  not  only  possible 
but  have  often  been  realities,  sometimes  to  the  great  dis- 
tress of  the  general  public. 


48  The  Other  Side  of  The  Money  Question. 

The  power  to  loan  and  discount  upon  a  reserve 
fund,  as  possessed  by  banks,  is  practically  the  power  to 
issue  money  to  that  extent.  Had  banks  never  been  per- 
mitted to  develop  the  discount  upon  reserve  field,  but 
instead  been  given  the  power  to  issue  circulating  money 
to  an  equal  amount,  they  would  not  be  enjoying  any 
privilege  much  different,  either  in  principle  or  results, 
than  they  now  possess  in  the  form  of  discounting  power. 

Had  they  ever  proposed  that  the  power  be  given 
them  to  issue  such  a  gigantic  sum  in  circulating  money, 
they  would  have  been  "laughed  out  of  court"  for  even 
suggesting  such  an  outrageous  proposition,  yet  indirect- 
ly they  have  secured  and  are  quite  firmly  intrenched  in 
all  the  essential  features  of  that  very  proposal  and  are 
still  seeking  more  power  and  privilege. 

The  power  possessed  by  banks  to  at  their  will  or 
pleasure  manipulate  the  vast  margin  between  the  possi- 
ble maximum  and  minimum  limits  of  discounting  is  so 
great  that  it  can,  when  exercised  with  some  degree  of 
accord,  substantially  negative  all  the  good  results  that 
may  reasonably  be  expected  from  a  wise  governmental 
policy  in  the  issue  and  regulation  of  the  money  volume 
that  circulates  from  hand  to  hand. 

What  protection  or  assurance  have  the  people  from 
disaster  when  the  bankers,  sometimes  for  causes  over 
which  they  have  no  direct  control,  but  at  other  times 
purely  from  motives  of  selfish  gain,  suddenly  contract 
or  as  suddenly  expand  the  volume  of  their  discounts? 


The  Other  Side  of  The  Money  Question.  49 

We  have  no  desire  to  quarrel  or  find  personal  fault 
with  the  bankers  who  control  this  vast  volume  of  "hocus 
pocus  money"  as  one  able  writer  fittingly  styles  it.  In 
very  many  instances  the  evil  results  arise  despite  their 
most  earnest  efforts,  and  they  themselves  be  as  much 
or  more  the  victims  as  the  members  of  the  community 
at  large. 

It  is  the  unstable  nature  of  the  system  as  a  prolific 
source  of  injury  that  we  are  opposing,  for  in  the  private 
or  corporate  manipulation  of  that  form  of  money  we 
find  the  initial  definite  movement  of  most  commercial 
and  industrial  panics  or  depressions. 

Neither  are  we  unmindful  of  the  great  usefulness 
of  the  work  that  it  has  performed  and  still  performs  in 
the  money  system  and  we  would,  to  the  utmost,  pro- 
test against  its  abolition  or  curtailment,  except  as  such 
abolition  or  curtailment  becomes  possible  through  the 
installation  of  a  more  adequate  public  system  that  will 
preserve  the  good  features  while  eliminating  the  injur- 
ious ones. 

The  service  that  the  people  get  through  the  medium 
of  the  loan  and  discount  system  is  of  great  value  to 
them  and  it  would  be  a  serious  blunder  to  abolish  or 
curtail  the  scope  of  such  system  without  at  the  same 
time  giving  the  people  the  desired  service  in  a  more  sta- 
tic and  satisfactory  form. 

The  effective  volume  of  money  mechanism  as  we 
have  thus  far  considered  it,  consists  of  three  divisions: 


50  The  Other  Side  of  The  Money  Question, 

First  Division—Circulating  cash   $  1,815,770,268.00 

Second  Division — Checking  accounts. .     3,049,007,371.00 
Third  Division— Loans  and  discounts.     9,893,700,000.00 


Total .$14,758,477,639.00 

Truly  this  is  a  gigantic  mechanism.  Is  it  any  sur- 
prise that  the  "money  question"  is  deemed  highly  im- 
portant by  those  who  give  it  study?  Is  it  any  wonder 
that  individuals  and  corporations  plan  and  scheme  to  se- 
cure possession  of  such  a  colossal  power  and  with  it  the 
opportunity  of  plundering  the  people  by  a  selfish  exer- 
cise of  that  power? 

But  vast  as  is  the  sum,  it  is  still  but  a  portion  of 
the  actual  money  mechanism  in  operation.  .  A  fourth 
great  section  yet  remains  to  be  considered  and  that  sec- 
tion is  of  such  stupendous  amount  that  it  is  practically 
equal  to  twice  the  combined  volume  of  the  other  divis- 
ions. It  is  a  sum  so  vast  that  it  would  be  denounced 
as  the  vision  of  a  dreamer  were  it  not  capable  of  being 
demonstrated  to  be  an  actual  existing  fact. 

This  division  arises  almost  entirely  through  -the  sys- 
tem that  enables  the  depositors  in  the  banks  to  loan  such 
deposits  to  others,  in  which  transactions  'the  banks  do 
not  directly  figure  except  in  a  clerical  capacity,  to  make 
the  transfer  on  their  books.  They  as  banks,  do  not  de- 
rive any  income  from  or  regulate  the  volume  of  such 
.  transfers. 

The  bulk  of  the  bonded  and  mortgage  indebtedness 


The  Other  Side  of  Tbe  Money  Question.  5 1 

of  the  country  is  maintained  by  means  of  this  section  of 
the  money  mechanism,  though  a  portion  of  it  is  trans- 
acted through  the  loans  and  discounts  of  the  third  divi- 
sion and  a  still  smaller  portion  through  some  of  the 
transfers  of  the  checking  accounts  of  the  second  division 
and  through  actual  transfers  of  cash  from  hand  to  hand. 

To  illustrate  the  method  by  which  this  vast  fourth 
section  is  created  and  maintained,  we  will  suppose  that 
Jones  has  a  deposit  to  his  credit  at  'the  bank,  of  one 
thousand  dollars.  He  is  deriving  three  per  cent  interest 
or  perhaps  even  four  per  cent  from  the  bank.  The  bank 
has  such  deposit  loaned  out  to  its  limi't,  so  that  it  in  turn 
can  make  a  profit  from  the  margin  between  the  interest 
it  pays  and  what  it  receives. 

Smith  wishes  to  borrow  one  'thousand  dollars,  has 
plenty  of  good  security,  and  offers  to  pay  Jones  six  per 
cent  interest  if  he  will  lend  it  to  him.  Jones  is  agreed, 
Smith  turns  over  a  mortgage  upon  his  security  and  Jones 
gives  Smith  a  check  for  the  thousand  dollars. 

Smith  takes  the  check  to  the  bank  and  either  depo- 
sits the  check  to  his  credit  or  takes  out  the  cash.  If  he 
takes  out  the  cash,  it  will  only  be  to  deposit  it  in  some 
other  bank  or  pay  it  over  to  someone  else  who  will.  If 
the  one  bank  is  thus  drained  of  cash,  under  normal  con- 
ditions of  banking  the  bank  recovers  the  amount  by  the 
withdrawals  from  other  banks  that  are  deposited  with  it. 

The  net  result  to  the  bank  is  usually  the  same  as  if 
the  credit  had  been  left  in  the  bank  and  then  transferred 


52  The  Other  Side  of  The  Money  Question. 

to  others  by  check,  and  this  is  the  customary  practice  in 
every-day  business. 

As  the  banks  only  transferred  the  account  from 
Jones  to  Smith,  it  would  not  affect  the  deposits,  loans  or 
reserves  of  the  bank  and  they  would  remain  as  before 
the  'transfer. 

Smith  takes  his  check-book  and  pays  out  the  account 
now  to  his  credit.  It  goes  in  many  directions  as  the 
reader  will  readily  understand,  becomes  active  in  the 
money-work  and  continues  in  such  work  until  Smith 
pays  the  thousand  dollars  back  to  Jones,  has  the  mort- 
gage cancelled  and  the  transaction  closed. 

The  making  of  the  loan  has  put  into  effective  oper- 
ation an  addition  of  one  thousand  dollars  to  the  money 
mechanism.  The  addition  has  been  made  without  re- 
quiring the  bank  to  reduce  its  loans  or  enabling  it  to 
increase  them. 

At  this  juncture,  though  a  digression,  it  may  not  be 
amiss  to  'briefly  note  the  subtle  jealousy  or  confliction 
of  interests  between  the  banking  institutions  that  pro- 
vide the  mechanism  of  the  third  division  and  the  indi- 
viduals who  provide  the  bulk  of  the  mechanism  of  the 
fourth  division. 

Until  the  millenium  comes,  the  selfish  instinct  in 
bankers  will  probably  work  its  logical  result  the  same 
as  with  other  persons,  and  this  instinct  will  more  and 
more  cause  banking  institutions  to  scheme  and  plan  to 
control  the  entire  field  of  loans. 


The  Other  Side  of  The  Money  Question  53 

As  the  opportunities  arise,  the  bankers  will  be  apt 
to  promote  every  measure  that  will  tend  to  drive  pri- 
vate loaners  from  the  field  of  money  service  and  secure 
new  privileges  that  will  enable  them  to  expand  their 
own  field  of  action  and  give  them  a  monopoly  of  the  ser- 
vice. 

Banks  will  not  always  be  content  to  act  as  custod- 
ians or  bookkeepers  for  private  loaners,  to  be  satisfied  to 
have  the  lenders  of  deposits  skim  the  cream  from  the 
money  service  profits,  leaving  them  to  be  satisfied  with 
but  a  small  portion  of  the  net  profits,  while  doing  most 
of  the  actual  work. 

Some  day  there  will  be  a  "battle  royal"  between 
those  interests,  unless  the  people  in  the  meantime  take 
action  to  place  the  money  service  upon  a  full  public 
basis. 

In  fact,  it  requires  no  very  great  powers  of  observ- 
ance to  notice  quite  a  little  movement  already  manifest- 
ing itself  among  the  banking  element,  along  the  lines 
of  eliminating  the  depositor  as  a  profit  sharer. 

The  private  lenders  will  do  well  to  ponder  over 
such  phase  of  the  subject,  or,  in  their  anxiety  to  get  as 
much  as  possible  from  the  borrowers,  they  may  neglect 
to  realize  that  their  co-partners  of  to-day  may  to-morrow 
be  riding  rough-shod  over  them  as  well  as  the  borrow- 
ers, and  the  victorious  banks  will  then  probably  wage 
war  among  themselves  in  their  battle  for  supremacy,  and 


54  The  Other  Side  of  The  Money  Question. 

to  determine  the  precise  manner  in  which  the  big  fish 
shall  eat  the  little  ones. 

To  return  'to  the  illustration  we  were  considering. 

So  far  as  the  volume  is  concerned,  it  is  virtually  the 
same  as  if  Jones  had  been  given  power  to  issue  one 
thousand  of  money  based  upon  his  deposit,  or  as  if  Smith 
had  been  given  power  to  issue  the  same  amount  based 
upon  his  security. 

Practically  they  have  "coined  money."  They  have 
created  a  volume  of  mechanism  that  is  used  as  medium 
for  all  kinds  of  exchanges,  it  pays  debts  on  every  hand, 
though  not  a  legal  tender;  and  it  exercises  its  propor- 
tionate weight  in  determining  not  only  the  range  of 
average  prices,  but  the  exchangeable  value  of  each  and 
every  dollar  of  other  form  of  money. 

Every  dollar  of  the  amount  is  doing  money-work  as 
certainly  as  the  money  volumes  of  the  first,  second  and 
third  divisions,  though  it  generally  deals  with  the  field 
of  larger  amounts.  Practically  all  'the  transactions  in- 
volving very  large  sums  are  by  means  of  this  section  of 
the  mechanism. 

It  may  be  thought  that  such  a  second  increase  is  a 
"counting  twice"  rather  than  a  real  increase.  Under 
certain  conditions  it  would  be  difficult  to  give  valid  rea- 
sons for  thus  counting  under  both  headings,  but  those 
conditions  seldom  occur  in  real  life.  For  instance,  if 
Smith  borrowed  the  money  from  Jones  at  six  per  cent 
and  turned  right  around  and  loaned  it  to  Brown  upon 


The  Other  Side  of  The  Money  Question.  55 

equal  security  for  the  same  rate,  it  would  be  a  duplica- 
tion in  amount  rather  than  a  real  increase  of  effective 
volume.  But  practically  that  condition  never  exists,  for 
there  is  always  some  expense  involved  and  Smith  would 
be  the  loser  to  -that  extent,  for,  rather  than  pay  the  ex- 
penses of  'two  loans,  Brown  would  have  dealt  first-hand 
with  Jones,  or  some  other  person. 

In  the  ordinary  course  of  business,  if  money  is  bor- 
rowed at  one  rate  of  interest  and  reloaned  at  a  higher 
rate,  the  difference  in  rates  is  an  indication  of  a  money- 
work  field  that  would  not  be  supplied  at  the  lower  rate, 
and  of  course  both  processes  should  be  counted  as  the 
mechanism  used  in  providing  such  service. 

The  growth  in  the  volume  of  money  mechanism, 
through  the  lending  by  the  depositors  of  their  accounts 
in  the  banks,  somewhat  resembles  the  cumulative  man- 
ner in  which  a  comparatively  small  amount  of  cash  ex- 
pands to  large  proportions  under  the  system  of  discount- 
ing upon  a  reserve.  It  differs  in  that,  as  there  is  no  re- 
serve required  in  the  transaction,  there  is  no  limit  to  the 
aggregate  volume  that  may  be  thus  created,  except  the 
disposition  of  the  owners  of  the  deposits  to  lend  and  the 
needs  or  demands  of  the  prospective  borrowers,  while, 
in  the  banking  upon  a  reserve  division,  the  maximum 
limit  of  discounting  is  fixed  ;by  the  amount  that  could 
be  carried  upon  the  volume  of  money  available  for  re- 
serve purposes. 

The  re-loaning  of  moneys  is  kept  restricted  by  the 


56'  The  Other  Side  of  The  Money  Question. 

very  practical  fact  that  subsequent  borrowers  at  a  higher 
rate  of  interest  cannot  compete  in  business  with  the  first 
borrowers  at  a  lower  rate,  thus  naturally  giving  those 
who  have  the  real  security  and  are  willing  to  risk  it  the 
advantage  over  those  who  have  security  a  little  less  de- 
sirable. 

As  in  the  third  division,  the  borrowers  in  the  fourth 
division  jpay  for  and  have  the  use  of  a  great  money  ser- 
vice that  they  could  not  otherwise  secure  under  the  sys- 
tem as  at  present  organized. 

But  suppose  that  at  some  past  period,  say  ten  or 
twenty  years  ago  for  illustration,  the  depositors  in  all 
banks  had  agreed  to  leave  their  deposits  intact  in  the 
banks  and  not  to  lend  them  to  others. 

It  is  evident  that  the  depositors  had  a  perfect  legal 
right  to  leave  the  deposits  intact  and  such  a  course  would 
have  been  somewhat  strengthened  by  the  fact  that  the 
deposits  were  drawing  interest  while  so  kept. 

'Such  a  course  would  have  been  largely  immaterial 
to  the  banks,  as  they  loaned  to  the  limit  anyhow  and  it 
would  not  cause  them  to  reduce  their  volume  of  loans 
and  discounts. 

But  it  is  generally  clear  that  such  a  course  would 
have  prevented  the  expansion  of  the  money  mechanism 
to  the  extent  that  has  'been  required  in  the  meantime, 
and  without  such  corresponding  expansion  in  the  money 
mechanism  the  business  expansion  could  not  have  ex- 
isted. 


The  Other  Side  of  The  Money  Question.  •  57 

For  like  reasons,  if  the  present  depositors  in  the 
banks  would  refuse  to  loan  their  deposits,  upon  mort- 
gages and  bonds,  but  simply  allow  them  to  remain  in 
the  banks  drawing  interest,  it  would  largely  tend  to  pre- 
vent further  business  expansion  and  development,  not 
because  the  owners  of  the  deposits  were  doing  anything 
of  a  wrongful  nature  by  so  refusing,  but  because  under 
the  present  system  it  would  be  impossible  for  the  would- 
be  borrowers  to  get  the  money  from  any  other  quarter. 

The  borrowers  need  the  service  and  its  importance 
in  the  economic  field  is  so  great  that  its  denial  or  curtail- 
ment would  cause  havoc  in  all  the  larger  transactions 
and  such  evil  would  quickly  spread  through  all  the  chan- 
nels of  smaller  transactions. 

In  the  larger,  as  in  the  smaller  fields  of  money,  there 
is  an  element  of  pure  gambling  that  ought  to  be  oblit- 
erated for  the  same  reasons  that  prompt  the  abolition  of 
common  forms  of  gambling,  but  the  vast  bulk  of  trans- 
actions are  of  real  value  in  the  economic  of  the  country, 
and  under  no  circumstances  should  the  present  mode  of 
effecting  such  transactions  be  abolished  or  curtailed,  ex- 
cept as  it  may  be  rendered  through  the  installation  of  a 
more  perfected  system  of  money  servic. 

The  aggregate  volume  of  the  mechanism  of  the 
fourth  division  is  practically  equal  to  the  entire  bonded 
and  mortgage  indebtedness  of  the  country,  national, 
state,  local,  corporate  and  individual,  less  such  propor- 
tion of  it  as  may  be  represented  in  the  transactions  of 
the  other  divisions. 


58  The  Other  Side  of  The  Money  Question. 

The  author  does  not  have  at  hand  authentic  figures 
for  the  amount  of  such  indebtedness,  but  a  conservative 
estimate  would  be  thirty  billions  of  dollars. 

Using  that  estimate  as  a  basis  and  estimating  that 
five  billions  of  it  is  represented  in  the  other  divisions,  it 
would  leave  an  approximate  aggregate  of  twenty-five 
billions  of  dollars  arising  through  the  fourth  grand  divi- 
sion. 

The  grand  total  of  money  mechanism  of  all  divi- 
sions, in  round  numbers,  would  be  as  follows : 

First  Division— Circulating  cash    ......$  2,000,000,000.00 

Second  Division— Checking  accounts..  3,000,000,000.00 
Third  Division— Loans  &  discounts..  10,000000,000.00 
Fourth  Division— Bonds  &  mortgages  25,000,000,000.00 


Grand  total  $40,000,000,00.00 

This  is  truly  a  stupendous  mechanism,  and  it  is  not 
a  creation  of  the  imagination,  but  a  vital  effective  reality. 

The  U.  S.  Abstract,  page  650,  estimates  the  true 
value  of  every  form  of  property,  in  the  United  States, 
in  1904,  at  $107,104,211,917.00. 

The  mechanism  of  money  requires  that  more  than 
one-third  of  the  entire  wealth  of  the  nation  shall  be  prac- 
tically monetized. 

Such  mechanism  is  all  in  actual  use  performing  the 
money  function  and  necessary  to  the  business  of  the  na- 
tion. It  results  in  a  direct  benefit  to  those  who  employ 
it  and  to  the  nation  as  a  whole. 


The  Other  Side  of  The  Money  Question.  59 

Nine-tenths  of  it  bears  direct  interest  and  so  great 
is  its  importance  that  the  borrowers  would  sooner  pay 
the  interest  than  be  compelled  to  do  without  the  service. 

The  welfare  of  all  the  people,  those  who  do  not  di- 
rectly act  as  'borrowers  as  well  as  those  who  do,  and  in 
the  great  majority  of  instances  the  lenders  as  well,  is 
inseparably  connected  with  the  maintainence  of  the 
money  mechanism  in  all  its  usefulness  and  its  improve- 
ment wherever  possible. 

Rightly  considered,  its  large  or  increasing  volume 
ought  no't  to  be  an  indication  that  the  people  are  poor 
or  becoming  poorer,  or  that  they  are  being  leadened 
with  increasing  weight  of  debt,  but  it  should  be  simply 
an  indicator  of  the  fact  that  development  of  exchange, 
like  development  of  production,  constantly  requires  a 
larger  and  larger  aggregate  mechanism  to  properly  ful- 
fil its  economic  mission,  and  that  its  growth  is  an  evi- 
dence of  the  ability  of  the  people  to  produce  an  increas- 
ing volume  of  all  that  ministers  to  their  physical,  intel- 
lectual and  moral  advancement. 

In  these  days  when  on  every  hand  we  find  increasing 
evidence  of  the  necessity  and  economic  advantage  of 
having  government  exert  a  wider  range  of  influence  in 
many  spheres  of  activity,  is  it  possible  that,  in  the  vast 
field  covered  by  the  medium  of  exchange,  it  is  the  part 
of  wisdom  for  the  public  to  permit  that  most  ancient  and 
beneficient  of  public  utilities  to  become  less  and  less 
public  and  more  and  more  fully  under  the  control  and 
dictation  of  individuals  and  corporations? 


CHAPTER  VI. 

NECESSITY     OF    STABILITY    IN     MONEY  —  WHAT   IS     MEANT 

BY   STABILITY  —  EVILS   OF   RISING   AND    FALLING 

AVERAGE   PRICES — INADEQUACY    OF 

BOTH    BIMETALLISM    AND 

MONOMETALLISM. 

After  thus  portraying  the  total  volume  of  the  money 
mechanism,  it  still  remains  to  be  demonstrated  that  it 
should  be  provided  by  the  pu'blic. 

One  of  the  prime  reasons  is  that  it  is  absolutely  es- 
sential for  money  to  have  a  stable  value  and  this  is  im- 
practicable, if  not  impossible,  except  under  a  public  sys- 
tem. 

Here  the  very  important  question  arises  "what  is 
meant  by  stable  value?" 

The  economists  have  written  volumes  upon  the 
word  "value"  and  they  are  still  at  it,  for  it  seems  to  be 
the  most  troublesome  one  that  they  have  to  deal  with, 
but  there  is  somewhat  of  a  unanimity  of  opinion  that 
"value"  means  "relation  in  exchange. 

Under  such  definition  of  value,  a  stable  money 
would  be  one  that  had  a  stable  relation  in  exchange. 
That  is,  compared  with  the  thing  it  was  to  buy,  or  that 
was  to  buy  it,  the  relation  would  remain  the  same.  For 
ins'tance  a  stable  dollar  would  be  one  that  would  alwavs 


The  Other  Side  of  The  Money  Question.  61 

preserve  the  same  relation  to  a  certain  quantity  of  that 
which  it  was  to  exchange  for. 

At  this  juncture  it  will  occur  to  the  reader  that  there 
were  a  multitude  of  things  that  money  was  to  exchange 
for,  and  that  it  would  be  impossible  to  have  money  re- 
tain the  same  relation  to  each  and  every  item  in  the  list 
of  exchanges. 

Quite  true,  and  even  if  it  was  possible  it  would  be 
very  undesirable  from  an  economic  point  of  view,  for  it 
would  take  away  the  compensating  influence  that  money 
exerts  in  dealing  with  variations  in  the  production  of 
things.  For  instance  other  things  remaining  the  same 
a  short  crop  of  wheat  means  higher  prices  to  the  wheat 
growers,  and  this  "tends  to  prevent  them  from  sustaining 
the  entire  effect  of  the  reduced  crop.  On  the  other  hand 
an  extra  large  yield  means  lower  prices  and  cheaper 
wheat  to  those  who  do  not  produce  wheat.  Thus  the 
public  as  a  whole  assumes  part  of  the  loss  and  gets  part 
of  the  advantage  when  anyone  thing  is  abnormal  in 
comparison  with  other  things. 

It  is  equally  true  that  if  money  only  preserved  its 
relation  to  one  item  in  «the  list  of  things  that  are  ex- 
changed, that  it  would  be  going  to  the  other  extreme  and 
would  place  the  -means  superior  to  the  desired  end  and 
would  not  make  for  a  stable  money,  unless  it  was  ab- 
solutely sure  that  the  item  selected  would  be  one  that 
exactly  preserved  its  relation  with  other  things.  No  such 


62  The  Other  Side  of  The  [Money  Question. 

item  of  wealth  has  ever  been  found  and,  in  the  nature 
of  things,  probably  never  will  or  can  be. 

The  true  course  lies  between  ithe  two  extremes.  It 
being  impossible  and  undesirable  to  have  money  main- 
tain its  relation  with  each  and  every  thing  and  equally 
unfair  to  only  consider  one  thing,  justice  solves  the 
problem  by  requiring  average  things  to  be  the  basis  of 
comparison  with  money.  The  people  are  engaged  in 
producing  and  exchanging  a  vast  variety  of  things  and 
money  is  "stable"  just  in  proportion  as  it  preserves  its 
relation  with  the  average  of  those  things. 

Stability  of  average  prices,  or  average  purchasing 
power,  is  the  test  of  stability  in  money.  Alike  necessary 
for  all  business  transactions  and  calculations,  and  for 
the  preservation  of  the  equities  of  money  obligations 
and  money  savings,  it  is  practically  indispensable  to  a 
proper  working  of  the  money  system. 

The  one  heavily  in  debt  may,  in  his  anxiety  to  be 
released,  close  his  eyes  to  the  injury  wrought  by  rising 
prices  that  enable  him  to  pay  his  debts  with  money  of 
less  real  value  or  purchasing  power -than  he  should. 

The  one  with  large  balances  to  his  credit  in  the 
bank,  or  plenty  of  bonds  and  mortgages  calling  for  a 
specific  number  of  dollars,  may  close  his  eyes  to  the  in- 
jury wrought  by  falling  prices,  for  every  fall  increases 
the  exchangeable  value  of  his  holdings  in  like  propor- 
tion, without  any  effort  on  his  part. 

The   speculator  may   close  his    eyes   to   the   injury 


The  Other  Side  of  The  Money  Question.  63 

wrought  by  fluctuating  average  prices,  for  in  every  fluc- 
tuation he  finds  opportunity  for  possible  gain,  depen- 
dent upon  his  ability  to  forecast  the  direction  of  the 
fluctuation. 

But  the  welfare  of  the  people  as  a  whole  is  not  ad- 
vanced by  either  a  rising,  falling  or  fluctuating  scale  of 
average  prices.  It  imperatively  requires  a  stable  level. 

With  a  stable  level  of  prices  the  equities  of  all 
money  obligations  remain  at  a  just  relation,  savings  are 
preserved  intact,  and  business  affairs  have  a  solid  basis 
for  calculation,  whereas  under  a  rising,  falling,  or  fluc- 
tuating scale  of  prices,  business  transactions  really  par- 
take more  of  the  character  of  a  gamble  in  money  rather 
than  a  problem  of  the  production  and  distribution  of  real 
wealth. 

Whether  average  prices  shall  be  stable,  rising,  fall- 
ing, or  fluctuating  depends  wholly  upon  the  extent^ to 
which  the  supply  of  money  is  adjusted  to  the  demand. 

The  principle  of  adjustment  is  somewhat  similar  to 
the  one  employed  by  a  man  firing  a  boiler.  He  deter- 
mines the  quantity  and  intensity  of  his  firing  by  keeping 
his  eye  upon  the  steam-guage.  If  he  is  to  keep  a  certain 
pressure  and  it  rises  above  it,  then  he  checks  his  fire, 
while  if  the  guage  falls,  then  he  increases  his  fire. 

So  in  money  the  volume  cannot  be  absolutely  known 
in  advance,  but  is  determined  by  the  guage  of  average 
prices.  When  prices  are  stable,  is  signifies  that  the  vol- 
ume of  money  mechanism  is  adequate.  When  prices  are 


64  The  Other  Side  of  The  Money  Question. 

falling,  it  means  that  the  volume  is  inadequate  to  the 
demands  upon  it  and  should  be  increased.  If  prices  are 
rising  it  means  that  the  volume  is  too  full  and  should  be 
reduced! 

The  public  as  a  whole  is  directly  interested  in  main- 
taining that  stability  of  relation,  but  give  the  power  of 
determination  to  any  individual  or  group  of  persons  and 
they  would  not  keep  such  stability  for  they  could  amass 
wealth  far  more  rapidly  by  making  the  volume  fall,  rise 
or  fluctuate  and  by  the  inside  knowledge  that  they  would 
have  as  to  which  way  it  was  to  go,  they  would  regulate 
their  business  transactions  so  that  every  variation  would 
mean  more  wealth  to  them. 

Though  the  stability  of  money  essentially  depends 
upon  the  proper  regulation  of  supply  to  demand,  as  indi- 
cated by  average  prices,  we  find  a  large  portion  of  our 
modern  bankers  and  financiers  arranged  in  two  classes, 
the  one  class  rqcognizing  but  one  thing,-  gold,  as  an  in- 
dicator, the  othet  class  seeking  for  power  to,  as  they  say, 
"issue  just  sufficient  to  fill  the  channels  of  business," 
disregarding  what  ought  to  be  an  evident  fact  that  busi- 
ness will  absorb,  by  rising  prices,  all  that  may  be  offered 
and  that  the  channels  of  business  would  not  be  any  more 
filled  than  before. 

The  views  of  these  two  classes  overlap  and  inter- 
twine so  that  it  is  difficult  to  separate  them,  but  they 
are  alike  in  that  they  both  refuse  to  recognize  the  scale 
of  average  prices  as  being  the  only  true  register  of  money 


The  Other  Side  of  The  Money  Question.  65 

and  they  are  alike  insofar  as  they  have  thus  thrown 
away  the  steam-guage,  bolted  down  the  safety-valve  and 
are  firing  the  monetary  boiler  with  a  reckless  disregard 
of  the  true  mission  and  work  of  the  monetary  mech- 
anism. 

It  is  fast  becoming  a  grave  and  doubtful  question 
whether  or  not  in  the  near  future  those  "frenzied"  finan- 
ciers will  be  able  to  overcome  the  opposition  of  those 
bankers  and  financiers  who  have  comparatively  true  ideas 
upon  what  a  stable  money  is,,  and  who  recognize  the 
necessity  of  the  proper  indicator  to  be  used  in  the  reg- 
ulating process. 

Upon  a  basis  of  forty  billions  as  being  the  amount 
of  the  money  mechanism  on  July  1,  1906,  and  that  such 

amount   would   have    maintained    the   same    volume   of 
9 

business,  upon  a  stable  level  of  price,  it  is  evident  that 
if  the  amount  was  arbitrarily  reduced  to  thirty  or  twenty 
billions,  either  business  volume  or  prices  would  have  to 
be  shrunk  to  fit.  If  the  volume  was  arbitrarily  increased 
to  fifty  or  sixty  billions,  then  prices  would  rise  in  propor- 
tion unless  business  increased  sufficient  to  take  up  the 
increase. 

It  is  just  like  a  boy  with  a  slice  of  bread  and  a  cer- 
tain sized  lump  of  butter.  If  the  slice  be  small,  he  can 
put  it  on  thick,  but  if  it  be  large,  he  must  spread  it  out 
thinner. 

Throughout  the  evolution  of  money  there  has  been 
somewhat  of  a  constant  recognition  of  the  necessity  for 


66  The  Other  Side  of  The  Money  Question, 

a  stable  price  level  and  of  the  importance  of  the  money 
volume  as  a  measure  to  secure  such  stability. 

Though  space  will  not  permit  any  extended  discus- 
sion along  this  line,  it  may  be  well  to  note  that  one  of  the 
chief  reasons  always  given  for  the  adoption  or  continu- 
ance of  gold  and  silver  as  money  metals,  and  for  the  pol- 
icy of  unlimited  coinage,  was  that  the  annual  production 
was  very  small  in  proportion  to  the  total  stock  on  hand 
and  that  this  fact  made  those  metals  more  nearly  a  rep- 
resentative of  average  things  than  any  other  one  or  two 
commodities  would  have  been.  That  was  a  valid  excuse, 
if  reasonably  true,  so  long  as  the  evolution  of  money 
had  not  yet  progressed  to  a  point  where  it  could  dis- 
pense with  both  and  maintain  a  money  volume  that 
would  accomplish  better  results  yith  less  economic 
waste. 

The  respective  merits  of  the  bimetallic  and  mon- 
ometallic controversy  essentially  hinges  upon  the  rela- 
tive effect  that  each  would  have  in  providing  the  re- 
quired money  mechanism. 

The  supporters  of  each  policy  are  under  obligations 
to  establish  that  their  policy  will  produce  and  maintain 
approximately  the  required  mechanism,  no  more  and  no 
less. 

That  neither  policy  has  ever  done  so  will  be  evident 
to  those  who  review  the  history  of  average  price  move- 
ments. Very  great  and  frequent  alterations  have  been 


The  Other  Side  of  The  Money  Question.  67 

made  under  metallism,  with  consequent  disaster  to  the 
people. 

In  times  long  past,  under  metallism,  an  addition  of 
the  metals  was  just  so  much  of  a  proportionate  addition 
to  the  total  volume  of  money  mechanism,  for  (the  mech- 
anism was  practically  limited  to  the  volume  of  metals. 
Thus  if  the  volume  of  metal  offered  for  monetary  pur- 
poses was  equal  to  ten  per  cent  of  <the  existing  volume, 
then  its  addition  was  in  like  proportion. 

But  in  more  recent  times  the  expansion  of  the  mech- 
anism has  been  so  great' that- the  metallic  portion  of  it 
constitutes  but  a  very  small  part  of  the  whole  volume 

It  being  impossible  to  reduce  the  mechanism  to  the 
amount  of  gold  and  silver,  and  very  undesirable,  even  if 
it  were  possible,  at  its  best,  metallism  could  not  be  urged 
upon  broader  grounds  than  as  a  basis  for  the  total  vol- 
ume. / 

One  of  the  problems  confronting  those  who  still 
cling  to  metallism  (either  school)  is  to  demonstrate  that 
the  total  volume  invariably  and  in  exact  ratio  responds 
io  every  increase  or  decrease  in  the  smaller  volume. 
They  must  demonstrate  that  the  "tail  will  wag  the  dog" 
whether  it  will  or  no. 

Upon  that  basis  alone  can  metallism  have  any  stand- 
ing in  present  day  discussions  of  money. 

If  such  result  does  not  follow,  then  metallism  be- 
comes not  only  'superfluous,  but  a  source  of  positive  evil. 

If  die  smaller  volume  does  not  regulate  the  larger 


68  The  Oiber  Side  of  The  Money  Question. 

volume,  then  it  would  still  be  necessary  to  otherwise 
regulate  the  larger  volume,  and  this  could  be  far  more 
easily  accomplished  with  metallism  wholly  eliminated. 

By  some  mysterious  process  of  reasoning,  many  met- 
alli&ts  base  their  views  upon  the  belief  that  'the  people 
cannot  and  will  not,  of  their  own  volition,  properly  reg- 
ulate the  volume  of  money.  So  they  conclude  to  let  that 
be  determined  by  the  productions  of  the  metals,  or 
rather  by  that  portion  of  them  available  for  money  pur- 
poses. 

Such  method  of  neglecting  to  regulate  the  volume 
of  money  has  caused  endless  disaster  and  it  would  seem 
as  if  the  metallic  economists  ought  to  soon  recognize  the 
absurdity  of  their  position,  and  begin  to  develop  and 
explain  to  the  people  the  advantage  and  necessity  of 
scientifically  regulating  the  volume  of  money  and  not 
longer  to  permit  so  important  a  thing  to  be  determined 
by  ithe  uncertain  production  of  either  gold  or  silver. 

Metallism  to-day  occupies  an  anomalous  position  in 
the  money  field.  Wholly  inadequate  to  supply  the  total 
iflechanism  and  becoming  more  and  more  inadequate  to 
control  the  total  volume,  it  has  reached  the  evolutionary 
stage  where  it  should  be  consigned  to  the  realm  of  his- 
tory, along  with  the  stage  coach,  the  hand  scythe  and 
other  things  very  important  in  their  proper  day,  but  now 
discarded  for  things  of  more  improved  character. 

According  to  the  government  reports  already  quoted 
we  have  learned  that  there  was  approximately  $2,000,- 


The  Other  Side  of  The  Money  Question  69 

000,000.00  of  gold  and  silver,  or  about  one  in  twenty  of 
the  'total  volume  of  mechanism. 

From  the  metallist  point  of  vi^w  one  dollar  in  the 
metal  field  ought  to  mean  just  about  twenty  in  the  total 
field.  Thait  if  the  metal  field  was  cut  in  two  the  total 
field  would  also  shrink  to  half  its  volume,  and  if  the 
metal  field  was  doubled  the  total  volume  would  also  be 
doubled,  and  that  the  total  volume  would  exactly  re- 
flect every  change  in  the  rndtal  section. 

From  their  point  of  view  fixing  the  volume  of  what 
they  call  "primary"  or  "standard"  money  must  necessar- 
ily establish  the  volume  of  the  total,  or  they  have  no 
case  at  all. 

What  are  the  facts  upon  this  point? 

Is  the  evidence  not  positive  enough  to  convine  all 
that  such  method  of  fixing  the  minimum  amount  has  not 
and  in  all  probability  never  will  determine  the  aggre- 
gate? 

The  aggregate  may  be  anywhere  from  the  minimum 
to  the  possible  maximum,  and  the  various  forces  that  de- 
cide how  much  of  a  movement  there  shall  be  within  this 
vast  margin  is  the  power  that  determines  what  the 
aggregate  shall  be. 

Some  of  the  leading  forces  that  operate  upon  this 
vast  margin  will  be  treated  in  the  next  chapter,  although 
in  an  incidental  manner  they  have  been  touched  upon 
in  previous  chapters  outlining  the  manner  in  which  the 
money  mechanism  has  grown  to  its  present  proportions. 


CHAPTER  VII.. 

UNCERTAINTY   OF   BANKING    UPON    RESERVE — DISASTROUS 
EFFECTS   OF    "RUNS"    BY   DEPOSITORS  —  PHYSICAL   IM- 
POSSIBILITY  TO   DO   AS    AGREED — INSURANCE   OF 
DEPOSITS — PANIC   PRECIPITATED   BY   ACTION 
OF   SPECULATORS   AND   INSTABILITY 
AS   THEIR   CHIEF   ASSET. 

As  we  have  noted  in  previous  chapters,  the  "depo- 
sits" in  banks  are  twelve  times  the  "cash  on  hand." 

These  deposits  are  payable  on  demand  if  on  "check- 
ing accounts"  or  in  varying  lengths  of  time  if  on  "sav- 
ings" or  "time"  accounts,,  but  it  is  all  liable  to  be  called 
for  within  a  very  short  period. 

The  depositors  so  believe  it,  or  they  would  not  de- 
posit in  the  banks. 

The  banks  agree  to  do  so. 

The  laws  say  the  banks  must  pay  or  close  their 
doors  and  go  into  bankruptcy  or  liquidation  the  same  as 
any  others  who  could  not  meet  their  obligations. 

While  the  banks  agree  to  pay  all,  their  expectancy 
is  that  they  will  never  be  called  upon  to  do  so  by  more 
than  a  very  small  propo  rtion  at  any  one  time.  In  fact 
as  a  matter  of  practice  they  expect  enough  new  deposits 
to  come  in  to  make  up  for  any  withdrawals  and  their 
normal  business  is  contingent  upon  that  happening. 


The  Other  Side  of  The  Money  Question.  71 

As  the  normal  interests  of  the  banks,  being  business 
concerns  run  for  profit,  are  not  advanced  by  carrying  a 
large  reserve  above  that  required  by  law,  the  banks  us- 
ually do  not  carry  much  more  than  the  legal  require- 
ment. 

The  fact  that  the  normal  interests  of  the  banks  will 
impel  them  to  loan  up  to  the  maximum  seems  to  be  the 
chief  argument  of  those  who  think  that  regulating  the 
volume  of  "primary'5  or  "standard"  money  will  regulate 
the  volume  of  the  aggregate  money. 

But  this  is  dependent  upon  two  things — First,  that 
the  banks  will  always  have  the  required  amount  of  such 
"primary"  money  to  work  upon.  Second,  that  it  will  al- 
ways be  to  their  interest  to  loan  to  the  maximum  limit. 

Does  the  system  at  present-  give  even  approximate 
assurance  that  the  banks  will  always  have  the  required 
amount  and  that  it  will  always  be  to  their  interest  to 
keep  loaned  to  their  limit? 

With  only  one  dollar  in  twelve  being  cash  on  hand 
it  is  evident  that  it  takes  but  a  very  slight  drain  from 
depositors  to  encroach  upon  the  reserve,  for  the  one  dol- 
lar in  twelve  barely  represented  the  legal  reserve.  If  one 
in  twelve  of  the  deposits  is  asked  to  be  paid,  the  legally 
valid  request,  if  granted  would  take  not  only  the  extra 
margin  but  the  entire  legal  reserve  as  well,  leaving  all 
other  depositors  stranded  high  and  dry  and  the  banks 
out  of  business. 

The  slightest^rumor  of  danger  is  the  signal  for  many 


72  The  Other  Side  of  The  Money  Question. 

to  "draw  out"  so  that  they  at  least  "will  be  on  the  safe 
side."  It  is  the  most  natural  and  reasonable  thing-  for 
anyone  to  do  if  he  feels  there  is  any  considerable  danger 
of  losing  his  savings.  It  is  the  same  logic  that  impels 
a  man  to  begin  moving  when  his  neighbors'  house  is  on 
fire  and  threatening  his  own.  It  is -the  same  logic  that 
prevents  a  man  from  using  a  bridge  that  in  his  opinion  is 
weak  or  insecure  and  which  impels  him  to  either  use  an- 
other means  of  crossing  or  else  not  cross  at  all. 

The  inclination  to  "draw  out"  spreads.  Other  de- 
positors, who  had  no  fear  that  the  banks  were  perfectly 
solvent  in  the  first  place,  fear  that  the  demands  of  the 
depositors  will  wreck  them  and  they  too  join  in  the  rush 
to  "get  their  money  out"  before  the  smash  comes. 

The  reserves  being  encroached  upon  by  the  run,  the 
banks  seeks  to  strengthen  them.  They  try  to  get  more 
cash  on  hand.  But  this  is  generally  difficult  and  almost 
impossible  when  other  banks  are  being  subject  to  a  drain 
or  when  they  may  be  getting  ready  for  a  possible  one. 
Banks  being  unable  to  secure  cash  from  each  other,  they 
demand  it  from  their  borrowers.  The  borrowers  must 
pay  up  long  before  they  had  calculated  upon  and  perhaps 
long  before  the  banks  had  expected  when  they  made  the 
loans.  No  new  loans  and  few  renewals  if  the  drain  con- 
tinues. 

To  get  the  cash  which  the  borrowers  must  have  to 
meet  their  obligations,  they  must  sell  their  property. 
Few  are  in  position  to  buy,  as  they  cannot  get  the  money 


The  Other  Side  of  The  Money  Question.  73 

to  buy  with.  Greater  and  greater  sacrifices  are  made 
to  induce  sales  so  that  the  borrowers  at  the  banks  can 
save  something  from  the  wreck.  Prices  fall  rapidly. 
Commercial  and  industrial  paralysis.  All  business  cur- 
tailed or  prostrate.  Workers  willing  and  extra-anxious 
to  work  but  there  is  "nothing  to  do."  Want  and  desti- 
tution spread.  Once  more  the  cruelties  of  "hard 
times"  becomes  a  reality,  while  everyone  deplores  the 
"lack  of  confidence"  and  talk  about  the  probable  length 
of  time  that  it  will  require  to  fully  "restore  confidence." 

After  a  more  or  less  extended  period  of  time,  in 
which  many  are  forced,  through  idleness,  to  consume 
their  savings,  and  in  which  many  are  simply  shorn  of 
their  equities  in  property,,  a  period  of  time  in  which  a 
few  may  be  in  position  to  lay  the  ground-work  for  fu- 
ture wealth,  the  situation  slowly  entangles,  the  money 
gets  back  in  the  ;banks,  business  begins  anew,  and  "hope 
being  eternal  in  the  human  breast,"  the  people,  less  ham- 
pered by  their  former  accumulations,  once  more  begin 
the  onward  march  jto  the  same  deplorable  destination, 
inevitable  so  long  as  the  unstable  features  of  the  present 
system  are  permitted  to  continue. 

Such  is  a  brief  sketch  of  the  salient  features  of  the 
frequently  recurring  "panics"  as  they  sweep  the  land 
like  a  mighty  tornado,  leaving  devastation  in  their  wake. 

Such  is  the  logical  result  of  trying  to  maintain  a 
banking  system  built  like  an  inverted  pyramid,  whose 
very  existence  depends  upon  the  banks  not  being  re- 


74  The  Other  Side  of  Tbe  Money  Question. 

quested  to  do  that  which  they  agree  to  do,  that  to  which 
the  depositors  are  perfectly  entitled,  and  that  which  the 
laws  say  the  banks  must"  do  if  requested. 

Could  -anything  be  more  ridiculous  in  both  principle 
and  practice? 

•    Imagine  the  safety  of  a  system  that  depends  upon  a 
physical  impossibility ! 

Is  it  remarkable  that  the  people  "lose  confidence"  at 
times  and  become  somewhat  doubtful  of  the  ability  of 
the  banks  to  perform  the  evidently  impossible  things 
that  they  agree  to  do? 

If  a  performer  on  the  stage  would  place  twelve 
bushel  measures  in  a  row  and  then  announce  to  his  audi- 
ence that  he  proposed  to  fill  them  with  one  bushel  of 
material  and  fill  them  alii  at  the  same  time  he  would  be 
considered  the  worst  kind  of  a  fakir,  but  is  he  really  de- 
pending much  more  upon  the  credulity  of  his  audience 
than  the  banks  do  when  they  aver  to  each  and  every  de- 
positor that  he  can  get  his  money  when  he  asks  for  it? 

If  a  man  raises  more  potatoes  than  his  family  eats 
during  the  summer  and  fall,  it  is  quite  natural  that  he 
put  his  surplus  potatoes  in  his  cellar,  to  use  during  the 
winter  and  spring. 

But  if.  he  happens  to  have  no  cellar  or  other  place 
fit  to  keep  his  potatoes  in,  and  chooses  to  sell  them  for 
money,  with  which  he  expects  to  buy  potatoes  during 
the  winter  and  spring  as  he  needs  them,  the  modern 
banking  system  practically  says  that  he  shall  not  keep 


The  Other  Side  of  The  Money  Question.  75 

the  money  in  his  own  pocket  or  safe,  if  he  feels  so  in- 
clined, but  he  must  put  it  in  a  bank.  Failure  to  do  so 
renders  him  liable  to  be  branded  as  an  enemy  to  and 
destroyer  of  the  public  welfare. 

We  may  agree  that  the  man  may  be  unwise  to  keep 
his  money  in  his  pockets  or  safe,  for  the  bank  may  be 
much  safer  from  theft  or  destruction,  but  it  is  'incredible 
that  there  could  be  any  inherent  wrongful  action  on  the 
part  of  the  man,  if  he  felt  like  running  the  risks,'  much 
less  a  crime  of  such  magnitude  as  to  brand  him  as  an 
enemy  to  public  welfare. 

If  he  wishes  to  do  so,  he  certainly  has  as  much  right 
to  keep  his  money  in  his  pocket  or  safe  as  he  would  have 
to  keep  his  potatoes  in  his  cellar,  but  the  present  banking 
system  denies  him  that  right,  and  conciously  or  uncon- 
ciously,  though  his  motives  may  be  the  best  and  not  a 
flaw  found  in  the  logic  of  his  position,  he  really  does  oc- 
cupy the  paradoxical  situation  of  being  an  enemy  to  the 
public  welfare  when  he  choses  to  exercise  a  right  that  all 
will  agree  he  does  and  should  possess. 

There  might  be  some  justification  for  the  public  to 
insist  that  the  potato-seller  deposit  his  money  in  the 
safest  place,  as  a  matter  of  enforced  protection  for  him, 
but  there  is  no  real  justification  for  compelling  him  to 
deposit  his  money  savings  for  the  purpose  of  giving  them 
to  others  to  use. 

The  grotesque  inconsistency  of  such  feature  of  our 
system  will  be  apparent  to  any  who  will  for  a  moment 


;6  The  Other  Side  of  The  Money  Question. 

consider  the  effect  if  those  "holding  one-twelfth  of  the 
deposits  should  conclude  to  keep  'their %)wn  money,  in- 
stead of  intrusting  it  to  the  keeping  of  the  banks. 

In  this  connection  it  may  be  in  order  to  suggest 
that  measures  to  make  deposits  more  secure  than  at  pre- 
sent are  very  liable  to  cause  injurious  results,  and  the 
more  secure  deposits  are  made  the  more  liable  injurious 
rsults  will  be  to  follow,  unless  radical  action  in  other 
features  of  the  banking  system  is  taken  to  counteract 
such  probable  injury. 

The  advocates  of  measures  to  insure  deposits  con- 
tend that  such  proposals  will  prevent  money  in  the 
banks  from  being  drawn  out  and  they  are  probably  cor- 
rect in  such  contention. 

They  also  contend  that  the  insurance  of  deposits 
will  cause  vast  sums  to  be  deposited  in  the  banks  that 
have  not  been  so  deposited.  The  secret  boards  that  nei- 
ther panic  or  prosperity  has  been  able  to  force  into  the 
banks  are  to  be  brought  there  by  the  potent  influence  of 
absolute  security. 

There  is  no  doubt  that  such  would  be  the  result,  to 
some  extent  at  least,  and  to  that  extent  it  is  fraught 
with  the  utmost  danger  to  a  system  that  is  unstable  even 
at  best. 

No  one  knows  how  much  money  is  held  in  secret 
hoards,  but  the  amount  outside  of  the  Treasury  and  all 
banks  was,  according  to  the  government  reports  much 


The  Other  Side  of  The  Money  Question.  77 

larger  than  the  amount  in  those  places,  the  sum  being 
$1,815,770,268.00. 

If  from  this  sum  we  subtract  the  amount  of  the  sub- 
sidiary and  minor  coins  and  the  National  Bank  Notes 
(which  are  not  available  for  bank  reserve  purposes)  we 
still  have  a  sum  approximating  $1,250,000,000.00  every 
dollar  of  which  could  be  used  as  a  basis  for  banking 

If  the  measures  to  insure  the  deposits  would  be  suc- 
cessful in  bringing  even  any  considerable  portion  of  that 
sum  into  the  banks  it  would  give  the  banks  that  much 
more  power  to  discount.  If  two-thirds  of  the  sum  would 
be  brought  to  the  banks  it  would  enable  them  to  expand 
their  loans  and  discounts  to  almost  twice  their  present 
proportions.  It  would  produce  a  colossal  and  wholly  un- 
called for  inflation  in  the  volume  of  money  mechanism 
and  as  such  it  should  be  given  most  careful  considera- 
tion. 

If  such  a  policy  is  to  'be  adopted  it  will  be  necessary 
to  accompany  it  with  measure  to  compel  banks  to  pro- 
portionately increase  their  reserves  to  take  up  the  money 
that  will  come  from  the  supposed  hoards,  or  the  county 
would  be  in  the  midst  of  a  ruinous  inflation. 

From  this  digression  we  return  to  the  subject  of  the 
stability  of  the  deposit  upon  reserve  system. 

Bad  as  this  system  would  be  if  it  were  only  subject 
to  be  shaken  or  razed  by  any  of  the  "runs"  prompted  by 
well  or  ill-founded  suspicions  of  the  people  in  general, 
it  becomes  immeasurably  worse  when  it  becomes  the 


78  The  Other  Side  of  The  {Money  Question. 

machinery  by  which  a  few  evil-minded,  selfish  or  reck- 
less persons  can  despoil  the  many. 

The  big  speculators  and  manipulators,  the  "mas- 
ters of  finance,"  use  the  very  instability  of  the  present 
system  as  their  chief  asset  when  they  wish  to  make  a 
raid  upon  the  people,  and  the  severity  and  duration  of 
such  raid  largely  depends  upon  the  extent  to  which  the 
system  can  be  thus  operated.  To  illustrate  their  opera- 
tions. 

A  "bear"  syndicate  is  formed  among  the  "mag- 
*nates."  They  wish  to  hammer  down  the  prices  of  secu- 
rities, property  and  products.  The  first  thing  they  do  is 
to  get  control  of  the  moaey  market  as  much  as  possible. 
Large  sums  are  practically  withdrawn  from  the  money- 
work  through  the  instrumentality  of  the  financial  insti- 
tutions that  they  own  or  control.  Money  becomes 
"tight."  Borrowers  cannot  'be  accommodated  as  usual. 
Property  and  securities  must  be  sacrificed  to  get  it,  just 
the  same  as  when  the  people  make  a  "run."  The  mar- 
kets collapse.  Prices  tumble.  The  just  equities  of 
money  obligations  crumble  away  and  vanish  with  the 
fall  in  prices.  "Panic"  reigns  just  as  if  the  people  had 
made  a  general  "run." 

When  prices  are  down  as  low  as  the  magnates  have 
power  to  send  them,  they  "buy  in"  and  become  "bulls" 
in  the  market..  The  money  is  restored  to  its  money- 
work.  Then  'banks  resume  their  usual  loans,  etc.  Prices 
• 

rise.     They  may  make  the  money  market  plentier  than 


The  Other  Side  of  The  Money  Question.  79 

it  was  before.  Prices  soar.  Speculation  runs  rife.  Every- 
one hugging  the  futile  hope  that  he  will  get  rich  by  the 
speculation  of  rising  prices  instead  of  by  legitimate  in- 
dustry and  economy.  Once  again  the  equities  of  money 
obligations  crumbles  away.  The  mortgage  that  was  for- 
merly equal  to  a  one-half  equity  is  but  equal  to  a  fourth 
and  those  who  thought  themselves  secure  for  their  de- 
clining years  waken  up  to  the  fact  that  the  rise  in  prices 
has  eaten  largely  into  their  supposed  holdings.  ' 

When  prices  are  as  high  as  the  syndicate  can  push 
them,  they  sell  out  their  holdings,  and,  having  augment- 
ed their  fortunes  at  both  ebb  and  flow  of  the  tide,  make 
preparations  to  repeat  the  operation  at  the  first  favorable 
opportunity,  while  many  people  hail  them  as  "finan- 
ciers," as  paragons  for  the  rising  generation,  and  their 
ill-gotten  booty  is  pointed  to  as  evidence  of  their  "great 
business  ability,"  when  in  truth  it  more  resembles  the 
proceeds  of  a  dastardly  and  inhuman  piracy. 

Usually  the  fight  between  the  bulls  and  bears  is  in 
the  nature  of  a  drawn  battle,  but  occasionally  one  or  the 
other  secures  the  mastery  and  then  the  land  is  in  the 
throes  of  a  "collapse"  or  "inflation,"  either  of  which  is 
highly  detrimental  to  the  welfare  of  the  people. 

Sometimes  these  movements  are  relatively  short  and 
sharp.  At  other  times  they  may  occupy  months  or  even 
years.  Generally  they  are  much  intensified  by  those  not 
in  the  speculative  class,  so-called,  but  who  think  to  turn 
an  "easy  dollar  or  two"  by  getting  on  the  right  side  of 


8o  The  Other  Side  of  The  Money  Question. 

what  the  recognized  leaders  are  doing.  No  doubt  the 
"big  fellows"  largely  base  their  calculations  upon  what 
these  "outsiders"  will  probably  do. 

It  is  due  to  many  of  the  leading  operators  to  say 
that  they  are  not  actuated  by  motives  of  sordid  greed  or 
avarice  hut  by  the  fascination  of  the  game  they  are  en- 
gaged in.  They  desire  to  be  able  to  control,  to  have  the 
power,  to  be  able  to  win  out  in  the  struggle.  Though 
they  would  leave  ho  stone  unturned  to  win,  oftentimes 
they  would  regret  very  little  if  their  surplus  riches  was 
to  vanish  over  night.  "To  win"  is  their  incentive,  the 
stakes  are  incidental. 

Oftentimes  the  boldest  a_nd  most  successful  mani- 
pulators are  ones  who  have  done  vast  ,good  in  useful 
productive  lines,  organizing  industry  on  less  wasteful 
basis,  etc. 

But  these  considerations  do  not  alter  the  fact  that 
their  "game"  is  most  hurtful  to  the  welfare  of  the  peo- 
ple and  that  the  public  welfare  should  cease  to  be  a  game 
for  speculators  to  play  with. 

Another  feature  of  the  existing  banking  system 
which  aggravates  the  difficulty  of  the  "primary"  or 
"standard"  money  being  a  determiner  of  the  aggregate 
volume  is  the  practice  of  permitting  legal  reserves,  or  a 
part  of  them,  to  be  deposited  in  other  banks,  such  as  we 
have  in  the  National  Bank  system.  It  is  a  pernicious 
practice  but  it  is  only  a  continuance  of  the  principle  es- 
tablished in  the  depositing  upon  a  reserve  system. 


The  Other  Side  of  The  Money  Question.  gi 

On  pages  204  and  205  of  the  Report  we  find  that  the 
National  Banks  were  required  to  keep  a  legal  reserve  of 
$975,761,920.29  and  that  the  amount  actually  held  only 
exceeded  the  legal  requirement  by  about  $58000,0000. 
It  is  evident  that  the  National  Banks  could  not  have 
stood  much  of  a  drain  upon  their  cash  without  encroach- 
ing upon  their  legal  reserves,  and  that  the  other  banks, 
with  less  than  one-fourth  as  much  reserve,  in  proportion 
to  deposits,  were  even  in  worse  condition  to  stand  a 
drain. 

It  would  seem  impossible  that  the  National  Banks 
alone  could  hold  in  "legal  reserves"  much  more  than  the 
total  "cash  on  hand"  of  all  banks  but  the  seemingly  im- 
possible feat  is  accomplished  by  one  of  those  inconsis- 
tencies often  met  with  in  the  existing  money  system. 

Over  a  third  of  the  total  "reserves"  held  >by  National 
Banks  was  not  actual  "cash  in  bank,"  but  was  "due  from 
reserve  agents,"  the  amount  being  $356,949,920.54. 

National  Banks  are  divided  into  three  classes — 
First — Those  in  ,the  "central  reserve  cities,"  New  York, 
Chicago  and  St.  Louis,  the  banks  numbering  62  on  June 
18,  1906.  Second — Those  in  "other  reserve  cities,"  such 
cities  being  38  in  number,  with  295  banks.  Third — "Non 
reserve"  or  "country  banks"  as  they  are  sometimes  call- 
ed, comprising  all  banks  not  in  the  first  and  second  class. 
The  banks  of  the  third  class  are  5,696  in  number. 

The  law  permits  National  Banks  of  the  non-reserve 
class  to  deposit  three  fifths  of  their  legal  reserve  with 


82  The  Other  Side  of  The  Money  Question. 

t 
other  reserve  banks  and  permits  banks  of  the  second 

class  to  deposit  one  half  of  their  legal-reserve  with  banks 
of  the  first  class. 

As  such  privilege  is  taken  advantage  of  quite  fully 
on  account  of  the  interest  that  the  banks  thereby  secure, 
it  results  in  reducing  'the  amount  of  cash  actually  in  bank 
to  much  below  the  supposed  legal  reserve. 

Such  reserves  become  unavailable  when  most  needed, 
and  after  they  become  in  use  as  the  basis  for  a  several 
times  larger  volume  of  loans  and  discounts,  they  cannot 
be  returned  to  the  original  banks  without  direct  injury 
to  the  business  that  centers  in  the  reserve  cities  and  in- 
direct but  sure  injury  to  the  business  of  the  localities  that 
are  the  rightful  owners. 

Human  ingenuity  would  exhaust  itself  trying  to  es- 
tablish that  a  deposit  in  a  bank  in  a  different  city  or 
state  is  a  safe  reserve  for  another  bank,  but  that  is  one 
of  the  inconsistencies  that  find  lodgment  in  the  monetary 
and  banking  system  as  at  present  organized. 

If  the  wealth  producing  classes,  the  property  own- 
ers as  well  as  those  who  own  neither  money  or  proper- 
ty, the  classes  who  constitute  the  real  borrowers,  were 
enabled  to  get  their  money  service  without  depending 
upon  the  money  owning  classes,  then  speculations  in 
stocks  and  commodities  upon  a  margin  would  practi- 
cally be  a  thing  of  the  past,  insofar  as  it  had  weight  in 
determining  what  the  prices  of  those  stocks  and  com- 
modities would  be,  while  now  the  methods  by  which 


The  Other  Side  of  The  Money  Question.  83 

the  money  owning  and  speculating  class  control  the 
money  supply,  which  the  producers  must  have,  is  one 
of  the  greatest  factors  in  determining  what  the  prices 
will  be. 

Divorce  the  producers  from  that  dependence,  by 
giving  them  the  service  in  a  more  satisfactory  form,  in 
a  form  that  is  not  dependent  upon  the  wills  of  the  mon- 
ey owners  or  speculators,  and  the  speculators,  if  they 
wished  to  continue  their  sport,  would  be  simply  gam- 
bling upon  what  the  future  price  of  an  article  would  be, 
without  any  material  power  to  affect  the  price.  It  would 
put  their  gambling  operations  in  the  same  class  with 
common  forms  of  gambling,  as  with  cards,  a  matter  that 
might  be  morally  wrong  and  reprehensible,  but  one  that 
would  not  have  material  economic  influence  outside  of 
those  immediately,  engaged  in  the  game,  while  at  pres- 
ent the  gambling  in  the  stock  and  .produce  exchanges  is 
of  the  utmost  import  to  the  pu'blic  at  (large. 

Going  into  the  larger  field  of  money,  we  find  that 
anything  which  will  tend  to  depress  the  prices  of  prop- 
erty and  stocks  may  cause  the  holders  of  deposits  in 
the  banks  to  fear  that  eventually  bonds  and  mortgages 
may  have  to  stand  a  share  of  the  depreciation.  This 
feeling  will  to  some  extent,  in  fact  a  very  large  extent, 
check  depositors  from  investing  in  general  bonds,  or  in 
anything  except  the  most  "gilt-edged." 

By  such  refusal  to  invest,  the  money  mechanism  is 


84  The  Other  Side  of  The  Money  Question. 

subject  to  the  most  radical  reduction  in  aggregate  vol- 
ume, both  absolute  and  relative. 

On  the  other  hand  if  the  money  volume  is  manipu- 
lated so  that  general  bonds  may  give  appearance  of  ab- 
solute safety,  then  the  depositors  in  the  banks,  getting 
a  low  or  no  rate  of  interest,  will  be  anxious  to  buy  bonds 
and  mortgages  to  get 'the  higher  rate  of  interest  that 
they  would  carry. 

By  such  stimulated  purchase,  the  money  mechanism 
is  subject  to  the  most  radical  increases,  in  aggregate 
volume,  both  absolute  and  relative. 

From  whatever  direction  the  subject  is  approached, 
the  investigator  will  find  that  the  actual  manipulation 
of  the  vast  margin  between  the  so-called  "primary"  mon- 
ey and  the  total  volume  of  money  mechanism,  is  so  great 
that  it  renders  ridiculous  all  pretense  to  control  by  that 
means,  and  the  conclusion  is  inevitable  that  if  the  pub- 
lic is  to  issue  and  regulate  money,  it  must  do  so  by  es- 
tablishing a  system  that  will  do  away  with  all  necessi- 
ty for  the  private  service  and  forever  protect  the  peo- 
ple from  injury  at  the  hands  of  those  who  "lose  confi- 
dence" and  those  who  use  the  money  system  of  the 
country  as  a  means  of  spoliation  or  as  a  pastime. 


CHAPTER  VIII. 

ENORMOUS  COST  OF  THE  MONEY  SERVICE  —  OUT  OF  PRO- 
PORTION TO  ACTUAL  INVESTMENT — A  PUBLIC  MONEY 
SERVICE  AS  A  MEANS  TO  ABOLISH  BULK  OF 
INTEREST  CHARGES — FALLACY  OF  CLAIMS 
TO  "MORAL"  OR  "INHERENT"  RIGHT 
TO  INTEREST  OR  USURY. 

t 

But  there  is  another  reason  why  the  money  service 
should  be  made  public  that  is  perhaps  even  more  impor- 
tant than  the  question  of  stability,  and  that  is  the  great 
saving  of  cost  that  can  therebv  be  effected. 

One  of  the  gifted  poets  has  said: 

"  111  fares  the  land,  to  hastening  ills  a  prey, 
Where  wealth  accumulates  and  men  decay/ 

And  in  those  lines  he  voiced  the  historical  truth 
that  it  is  equally  as  important  to  have  wealth  equitably 
diffused  as  it  is  to  have  it  produced. 

History  is  replete  with  examples  of  nations  halting 
in  thev midst  of  their  greatest  productive-  powers  and 
turning  into  the  paths  of  decay  and  extinction,  largely 
because  of  inequitable  diffusion. 

In  the  cost  of  the  monetary  service  to  the  public, 
the  "interest"  it  must  pay  for  the  use  of  the  medium  of 
exchange,  we  find  the  most  potent  and  most  continuous 
of  all  wealth  concentrative  forces,  for  it  exacts  a  direct 


86  The  Other  Side  of  The  Money  Question. 

,  profit  that  is  equal  to  a  very  large  portion  of  the  net  an- 
nual increase  of  wealth. 

The  money  mechanism  of  forty  billions,  nine-tenths 
of  which  bears  direct  interest,  at  an  average  rate  of  five 
per  cent,  exacts  a  total  tribute  from  wealth  production 
of  almost  two  billions  of  dollars. 

It  can  only  be  estimated  what  is  the  actual  expense 
involved  in  furnishing  this  service  and  what  is  net  profit 
to  those  who  provide  it,  but  we  have  one  or  two  good 
"straws"  that  may  serve  as  indicators. 

Banks  are  paying  three  and  one-half  and  even  four 
per  cent  for  deposits  that  they  may  loan  them  out  at  six 
per  cent,  thus  testifying  that  they  can  make  a  profit  on  a 
margin  of  two  per  cent,  even  with  the  wasteful  duplica- 
tion of  banking  plants  now  found  in  many  localities. 

Again,  the  government  charges  the  National  Banks 
but  one  half  of  one  per  cent  for  their  circulating  notes, 
such  sum  being  presumed  to  pay  the  expenses  of  fur- 
nishing the  money  and  all  expenses  of  the  department  of 
the  Comptroller  of  the  Currency. 

In  view  of  these  facts,  a  fair  estimate  of  the  actual 
cost  involved  in  the  furnishing  of  the  whole  money  ser- 
vice to-day  would  be  one  p.^.r  cent,  leaving  four  pe^  cent 
as  clear  profit,  or  $1,600,000.000.00  exacted  from  produc- 
tion, a  sum  almost  equal  to  the  entire  corn  and  cotton 
crops. 

If  one  man  or  a  colony  of  men  provided  the  entire 
service  and  lived  in  a  foreign  land,  and  demanded  that 


The  Other  Side  of  Tbe  Money  Question.  87 

this  annual  profit  be  sent  in  the  form  of  products,  the 
wealth  producers  would  simply  have  to  produce  $1,600,- 
000,000.00  worth  of  products  and  ship  them  abroad  to 
keep  from  getting  further  in  debt,  getting  absolutely 
nothing  in  return  for  such  great  sacrifice  that  they  could 
not  have  provided  for  themselves  at  actual  cost. 

A  comparison  of  the  nation's  exports  and  imports 
shows  that  the  exports  are  hundreds  of  millions  more 
than  the  imports.  The  difference  simply  goes  to  pay 
profits  to  foreign  holders  of  bonds  etc. 

Our  "eminent"  financiers  call  it  a  "favorable"  bal- 
ance when  we  send  abroad  more  products  than  we  re- 
ceive in  return,but  if  any  private  person  was  to  run  his 
personal  business  upon  that  basis  he  would  speedily  be 
bankrupt  and  in  an  asylum  for  lunacy. 

If  one  of  our  millionaires,  say  one  holding  one  hun- 
dred millions  of  bonds  paying-  five  per  cent,  was  to  move 
to  Europe  and  concluded  that  he  did  not  want  larger  in- 
vestment here,  but  that  he  would  collect  the  interest,  it 
would  mean  that  this  country  would  either  have  to  ex- 
port five  millions  of  dollars  worth  of  products  mere  than 
at  present  or  import  that  much  less.  If  all  the  million- 
aires were  to  put  their  holdings  in  bonds,  mortgages 
and  the  "gilt  edged"  securities  and  move  to  Furcpe,  it 
would  keep  everything  "a  humping  itself"  to  pay  the  in- 
terest in  products.  The  wealth  producers  would  be  com- 
pelled to  produce  that  much  mo.e  than  they  would  be 


88  The  Other  Side  of  The  Money  Question. 

permitted  to  consume,  truly  a  very  "favorable"  state  of 
affairs,  for  the  other  fellows. 

The  wealth  producers  would  be  sorely  tempted  to 
wholesale  repudiation  if  the  nation  was  to  ever  get  in 
such  shape  but  is  the  burden  upon  production  really 
much  less  because  the  millionaires  reside  in  our  midst? 

Were  the  money  service  of  the  country  nationalized 
and  systematized  like  the  postal  service,  the  actual  cost 
of  administration  would  be  far  less  than  at  present. 

If  thirty  billions  of  the  mechanism  were  placed  un- 
der a  public  system,  at  one  per  cent  it  would  give  an  in- 
come fifty  per  cent  larger  fhan  the  income  of  the  postal 
system,  and  not  only  pay  ail  its  own  expenses,  but  leave 
a  good  round  sum  available  for  other  purposes 

We  have  many  laws  deal.'ng  more  or  less  directly 
with  the  profits  that  public  service  corporations  can 
make.  Rates  are  supposed  to  be  kept  as  low  as  consis- 
tent with  giving  the  owners  a  chance  for  fair  returns. 

But  in  the  great  utility  of  money  service,  private  in- 
dividuals ^and  corporations,  with  no  investment  of  actual 
wealth  except  a  few  banking  rooms,  with  vaults,  lurni- 
ture,  books  and  stationery,  a'  an  outside  estimate  not 
aggregating1  more  than  one-half  a  buhon  dollars  and  ad- 
ministrative expenses  not  aggregating  more  than  one- 
quarter  billion  of  dollars,  the  people  are  required  to  pay, 
in  net  profits,  at  the  least  calculation  one  and  one-half 
billions,  or  about  three  hundred  per  cent  on  all  actual 
investment. 


The  Other  Side  of  The  Money  Question.  89 

A  railroad,  with  an  annual  expense  roll  of  one  hun- 
dred millions,  would  be  considered  in  good  condition  if 
it  cleared  one-tenth  of  the  amount,  yet  in  the  vast  money 
utility  we  find  that  the  profits  are  five  or  six  times  as 
much  as  the  total  expenses. 

The  net  annual  increase  of  wealth  approximates  but 
four  per  cent,  the  average  man  rejoices  when  the  balance 
is  on  his  side,  but  the  public  as  a  whole  is  apparently 
unconscious  or  indifferent  to  the  existence  of  this  colos- 
sal system  that  gathers  such  gigantic  profits  from  such 
small  real  investments. 

The  readers  may  say  that  the  providers  of  the  money 
service  have  not  such  a  small  amount  invested  but  that 
they  have  upwards  of  forty  billions  invested  and  that 
the  profits  ^on  such  sum  are  not  out  of  harmony  with 
other  business  returns. 

At  first  glance  that  may  seem  plausible  but  let  us 
look  beneath  the  surface. 

The  lender  of  money  simply  changes  the  form  of  his 
security.  He  does  not  invest  it  in  the  general  risks  of 
business.  No  prudent  loaner  ever  loans  except  upon  ad- 
equate security  and  a  little  more.  He  is  guaranteed  by 
the  extra  margin  that  the  borrower  first  must  lose,  and 
by  the  force  of  law  that  holds  the  security  good  ior  the 
loan.  The  lender  is  more  secure  than  he  would  be  if  he 
kept  the  amount  of  cash  in  his  pocket,  for  the  chances  of 
loss,  theft  and  destruction  are  much  less. 

The  lending  of  money  contributes  to  the  process  of 


9O  Tbe  Other  Side  of  Tbe  Money  Question. 

production  not  a  particle  of  additional  natural  resource, 
machinery,  sustenance  or  intellect.  It  simply  contri- 
butes a  'medium  of  exchange  under  our  present  system. 
From  the  standpoint  of  the  borrowers,  they  have  the 
real  wealth,  all  they  want,  all  they  need  and  all  they  get, 
is  a  representative  of  their  own  property  in  a  form  avail- 
able for  general  exchanging. 

But  the  reader  may  say  that  the  money  holdings  of 
the  lenders  represent  just  so  much  real  wealth  that  they 
have   produced,   or  secured,   and   not   yet  consumed,   or 
that  was  bequeathed  to  them  by  those  who  had  produc- 
ed, or  secured  it,  but  did  not  consume  it.    That  th?s  sur- 
plus of  wealth  was  simply  loaned  to  society,  taking  so- 
ciety's receipt  in  the  form  of  money.    That  by  reason  of 
this  form  of  withholding  or  delaying  consumption,  pro- 
ductive society  has  had  the  use  of  real  capital  that  it 
would  not  otherwise  have  had  and  has  by  the  use  of  that 
capital  been  enabled  to  produce  a  much  larger  aggregate 
of  wealth  than  would  have  been  possible  had  the  lenders, 
or  those  from  whom  they  inherited,  liv-^d  up  to  their  full 
rights   to   consume   all   they  had  produced.     That   such 
denial  gives  than  a  moral  right  to  a  share  of  such  extra 
production  and  that  it  would  be  very  unjust  for  society 
as  a  whole  to  adopt  or  even  seek  for  measures  that  would 
obviate  the  necessity  to  use  and  pay  for  the  use  of  such 
money  holdings. 

The  people,  not  having  access  to  a  public  supply  of 
the  medium  of  exchange,  have  for  so  long  been  accus- 


Tbe  Other  Side  of  The  Money  Question.  91 

tomed  to  depend  for  such  service  upon  the  using  of  the 
money  holdings  of  those  who  to  that  extent  elect  to 
keep  out  of  the  property  owning  and  productive  classes, 
that  the  custom  has  become  somewhat  surrounded  by  an 
atmosphere  of  "inherent  right." 

We  have  no  desire  to  enter  into  any  extended  dis- 
cussion, but  wish  to  offer  a  few  suggestions  in  opposition 
to  all  claims  of  "inherent"  or  "moral"  right  to  such  in- 
crease, though  of  course  we  concede  that  it  is  unavoid- 
able so  long  as  the  producers  will  not  provide  for  them- 
selves any  money  service  except  that  secured  by  using 
the  money  which  is  held  by  the  owners  to  exchange  for 
future  consumption. 

Conceding  that  the  producers  have  greatly  profited 
by  the  fact  that  others  did  not  consume  their  full  pro- 
duction, and  that  it  is  possible  for  producers  to  produce 
more  abundantly  by  having  the  use  of  such  real  capital, 
as  it  exists  in  the  form  of  improvements  of  every  kind, 
let  us  see  if  there  are  not  advantages  derived  on  the 
other  side  as  well. 

The  first  thing  to  be  noted  is  the  fact  that  without 
such  prior  saving  the  money  hnder  would  not  have  any 
claim  upon  society,  but  that  he  would  have  to  work  for 
everything  that  he  wanted  to  consume,  but  the  present 
system  practically  says  that  those  who  had  saved  have 
the  right  to  receive  back  more  than  they  had  saved  in 
the  past. 

Were  a  man  isolated  from  his  fellowmen,  »t  would 


92  The  Other  Side  of  The  Money  Question. 

be  practically  impossible  for  him  to  save  even  for  acci- 
dents or  sickness,  much  less  for  old  age.  No  matter 
how  great  his  productive  powers  he  could  not  raise  food 
to  last  him  more  than  a  very  short  time,  for  the  ravages 
of  the  elements  would  soon  cause  his  surplus  to  decay 
and  become  unfit  for  use,  much  of  it  lasting  but  a  few 
days  or  even  hours.  If  he  could  even  build  a  house  to 
live  in  during  his  old  age,  the  same  remorseless  destruc- 
tion would  pursue  his  efforts.  The  house  would  hardly 
be  built  before  the  disintegrating  forces  would  be  at 
their  work. 

To  a  man  isolated  from  his  fellowman  it  would  be 
exceedingly  difficult  to  provide  even  shelter  for  his  fu- 
ture and  simply  impossible  to  provide  food,  clothing  and 
the  thousand  and  one  things  that  minister  to  the  com- 
fort and  convenience.  The  isolated -man,  no  matter  how 
great  his  productive  ability  had  been,  would  speedily 
die  of  destitution  if  he  stopped  producing.  His  necessi- 
ties would  respect  neither  accidents,  sickness  or  old  age, 
but  he  must  either  work  or  die. 

In  a  state  of  civilization,  if  a  man  is  to  be  able  to  re- 
tire in  old  age,  or  tide  over  accidents',  sickness,  etc.,  it 
must  be  that  he  can  get  to  consume  those  things  that 
others  are  then  producing.  Th:s  of  course  would  be  im- 
possible to  man  in  an  isolated  state,  but  the  association 
of  men  with 'each  other  opens  up  a  vast  field  of  possi- 
bilities. 

It  is  reasonable  to  assume  that  if  he  is  to  consume 


The  Other  Side  of  The  Money  Question.  93 

part  of  the  wealth  that  others  will  produce  that  he  ought 
to  have  some  valid  claim  upon  such  wealth. 

It  is  also  reasonable  to  assume  that  he  can  only 
have  valid  claims  insofar  as  he  has  not  consumed  all  of 
his  production,  that  he  has  permitted  others  to  consume 
or  employ  it,  and  that  his  sustenance  in  the  declining 
years  of  life  or  during  accidents,  sickness,  etc.,  is  really 
but  the  return  to  him  of  an  equivalent  for  a  portion  of 
his  product  that  he  had  not  consumed. 

One  of  the  chief  purjposes  and  benefits  of  society  is 
to  give  him  that  very  opportunity,  and  with  all  its  im- 
perfections, it  does  so  on  quite  a  broad  scale.  In  theory 
at  least,  man  is  enabled  to  push  his  productive  powers 
to  his  highest  capacity,  consume  a  part  of  it,  let  ^ociety 
at  large  consume  or  use  the  balance,  and  then  have  its 
equivalent  returned  to  him  in  his  non-productive  periods. 

The  system  by  which  this  is  accomplished  has  been 

of   slow   development   and   in   modern   times   the   most 

% 

prominent  feature  of  such  system  has  been  money,  the 
medium  of  exchange.  The  establishment  of  a  common 
medium  of  exchange  has  made  it  comparatively  easy  for 
man  to  sell  his  surplus  or  saving  to  society  and  then 
afterwards  buy  it  back. 

The  endeavor  to  have  such  medium  of  exchange  so 
regulated  that  it  will  buy  back  a  fair  equivalent  to  what 
was  sold,  results  in  a  greater  perfection  of  money  as  a 
medium  of  exchange. 

The  social  organization  gives  man  a  priceless  boon 


94  The  Other  Side  of  The  [Money  Question. 

when  it  gives  him  the  power  and  right  to  consume  when 
he  no  longer  produces.  He  is  well  remunerated  when 
society  pays  him  back  everything  that  he  loaned. to  so- 
ciety, perhaps  at  a  time  when  he  would  be  unable  to 
produce  for  himself.  The  service  has  been  mutual.  Both 
society  and  the  individual  have  been  the  gainers  and  no 
"boot  money"  should  be  paid  by  either  for  a  service 
that  has  been  mutually  beneficial. 

•  No  one  should  be  entitled  to  share  in  the  increase  of 
production  except  those  engaged  in  production.  Those 
who  elect  to  get  out  of  productive  fields  by  putting  their 
claims  in  money  form,  are  certainly  not  morally  entitled 
to  any  reward  for  thus  denying  the  public  the  benefits 
of  their  productive  powers  and  no  such  reward  can  be 
given  except  by  reducing  the  natural  wages  of  those 
who  remain  in  productive  lines,  viz — their  product. 

From  time  immemorial  usury  or  interest  taking  fyas 
been  subject  to  widespread  condemnation,  principally 
because  it  has  always  appeared  to  the  people  as  being  a 
manner  of  "getting  something  for  nothing,"  "reaping 
without  sowing,"  etc.,  volumes  have  been  written  in  a 
moralizing  strain  and  countless  measures  have  been 
adopted  to  reduce  or  exterminate  it,  but,  unfortunately 
almost  all  of  those  measures  have  failed  for  the  simple 
but  ample  reason  that  they  did  not  provide  the  people 
with  any  alternative  service  and  the  efforts  to  reduce 
interest  were  sometimes  successful  only  at  the  expense  of 
a  corresponding  curtailment  in  the  service. 


The  Other  Side  of  The  Money  Question.  95 

Common  sense  teaches  all  men  that  there  may  come 
a  time  when  he  will  not  be  ab1e  to  produce  and  common 
prudence  teaches  that  some  provision  be  made  for  those 
days. 

Physical  inability  to  "keep -up  the  pace"  and  a  very 
human  instinct  to  some  day  "take  life  easy"  will,  dic- 
tate that  a  man  put  his  possessions  into  a  form  thot  will 
cause  him  the  least  trouble  to  manage,  the  least  anxiety 
about  their  safety  and  the  greatest  availability  when  he 
may  need  them. 

Society  furnishes  this  means  in,  the  institution  of 
money  and  when  a  man  parts  with  his  property  and 
products  in  exchange  for  the  advantages  of  money,  he 
has  no  inherent  claims  upon  society  except  that  it  pre- 
serve the  stability  of  the  money  so  that  he  will  not  be 
defrauded. 

If  there  is  any  inherent  right  to  interest  then  it 
would  only  be  necessary  to  make  one  saving,  or  accum- 
ulation, equal  to  say,  ten  thousand  dollars  in  order  to 
provide  the  means  by  which  one  family  could  have  an 
income  of  five  hundred  dollars,  at  five  per  cent.,  for  all 
time  to  come.  They  could  live  in  absolute  idleness  and 
yet  forever  be  consumers  quite  to  the  extent  of  what  one 
half  of  the  producing  families  are  consuming, 

A  fortune  of  but  one  million  could  establish  one 
hundred  of  such  families  for  all  time  to  come  anJ  they 
would  be  a  burden  upon  the  producing  families  for  all 
future  generations. 


96  The  Other  Side  of  The  Money  Question. 

By  no  method  would  it  be  possible  for  all  to  derive 
benefit  from  interest.  Even  if  every  family  owned  ex- 
actly the  average  share  of  money  and  all  could  lend  it 
to  each  other,  everyone  would  be  paying  exactly  as  much 
at  one  end  of  th$  process  as  they,  were  collecting  at  the 
other  end. 

It  is  possible  for  all  individuals,  by  industry  and 
economy,  to  derive  a  benefit  from  society  in  the  return 
of  their  savings,  but  it  would  be  but  a  striving  to  "lift 
oneself  over  the  fence  by  pulling  on  the  boot  straps" 
upon  a  gigantic  scale  for  a  whole  people  to  think  that 
any  amount  of  industry  and  'economy  would  put  them 
in  a  condition  to  permanently  live  upon  or  be  benefitted 
by  interest,  and  the  almost  universal  desire  to  attain  to 
such  position  is  but  a  chasing  of  a  "will  of  the  wisp" 
that  if  not  checked  will  undermine  the  natural  incentive 
to  production  and  economy  that  follows  a  definite  knowl- 
edge that  the  right  to  after-consumption  is  but  equal  to 
the  prior  abstinence  from  consumption. 


CHAPTER  IX. 

DOES   THE    INTEREST   TOLL   REVERT   TO  THE  WEALTH  PRO- 
DUCERS ?      ARE    THE     HOLDERS     OF    GREAT   WEALTH    A 
BURDEN    UPON     PRODUCTION  ?      PROFLIGACY    AND 
COMPARATIVE   ECONOMY    OF    THE   WEALTHY 
CLASSES  CONTRASTED — EXTREME  MEN- 
ACE   OF    TRANSMITTING    GREAT 
HOLDINGS    OF    WEALTH. 

It  may  be  thought  that  the  burden  of  interest  pay- 
ing is  more  apparent  than  real;  that  the  producing  class- 
es are  in  great  measure  the  lending  classes  as  w<^H  and 
that  the  toll  of  interest  reverts  to  them. 

It  is  very  fortunate  indeed  that  this  is  true  to  some 
extent,  every  debtor  having  more  or  less  creditor  inter- 
est, though  sometimes  it  is  very  small.  Thousands  of 
active  producers  have  money  loaned  upon  mortgages  or 
have  funds  in  the  banks  drawing  interest,  or  they  reap 
incidental  benefits  from  other  sources. 

As  it  is  simply  impossible  for  all  to  come  out  "ahead 
of  the  game,"  it  would  require  some  sort  of  cancellation 
process  to  determine  the  approximate  line  of  division 
that  would  place  any  individuals'  selfish  interest  with 
the  debtor  or  creditor  class. 

Upon  a  volume  of  $40,000,000,00000  and  a  popula- 
tion of  84,662,000  the  money  mechanism  would  'repre- 
sent about  $2,500.00  for  each  family  of  five,  fhat  they 


98  The  Other  Side  of  The  Money  Question. 

must  pay  interest  upon  whether  they  are  direct  borrow- 
ers or  not.  If  they  are  deriving  interest  from  that 
amount  they  are  just  sqaure.  If  not,  they  are  the  losers 
to  the  extent  of  the  difference 

With  such  a  test,  comparatively  few  will  be  found 
upon  the  side  of  the  creditor  classes.  The  bonds  and 
mortgages  held  by  the  thirty  or  forty  thousand  million- 
aires, together  with  their  preferred  stocks  that  by  mo- 
nopoly powers  are  virtually  as  burdensome  as  a  mort- 
gage upon  the  people,  practically  absorb  the  entire 
amount  leaving  the  vast  majority  of  all  others  in  the 
debtor  class. 

But  the  reader  may  say  that  the  evil  effect  of  the 
concentration  of  wealth  is  liable  to  be  overdrawn  by 
those  who  deplore  it,  that  the  concentration  is  one  of 
titles  or  claims,  rather  than  one  of  possession  and  con- 
sumption, that  the  people  have  quite  the  same  use  of  the 
wealth  as  if  they  held  the  titles  themselves,  that  the 
average  wealthy  person,  while  living  upon  a  scale  far 
more  expensive  than  average  persons,  still  lives  upon 
but  a  small  portion  of  his  income,  and  that  the  balance 
goes  into  bonds  ugon  or  titles  to  more  new  houses, 
factories,  railroads,  etc.,  which  the  people  will  occupy 
and  use  much  the  same  as  if  they  held  the  bonds  and 
titles. 

This  is  undoubtedly  true,  and  the  failure  of  those 
who  deplore  wealth  concentration  to  take  proper  co- 
gnizance of  its  truth  is  responsible  for  a  large  measure 


The  Other  Side  of  The  Money  Question.  99 

of  the  public  complacency  and  indifference  with  which 
such  concentration  is  regarded 

On  every  hand  we  see  the  profligate  expenses  of 
many  of  the  rich.  Great  city  castles  will  be  built  for 
residences,  costing  enough  labor  to  build  comfortable 
homes  for  thousands.  Magnificient  country  estates  are 
added,  to  be  occupied  for  three  or  four  months  in  the 
year,  at  a  labor  expense  that  would  build  good  homes 
and  barns  for  all  the  farmers  within  a  hundred  miles. 
Great  private  collections  of  the  choicest  treasures  of  art 
are  reserved  for  the  comparatively  few,  while  the  amount 
expended  ought  to  bring  them  within  reach  of  the 
multitude.  Social  functions  representing  the  labor  of 
thousands  of  days  are  so. frequently  held  as  to  be  given 
hardly  more  than  passing  notice. 

A  vast  aggregate  of  labor  is  practically  wasted  in 
providing  the  means  for  the  diversions,  foibles  and  va- 
garies that  the  idle  wealthy '  may  invent,  running  all 
down  along  the  scale,  sometimes  to  the  extreme  of 
dissipation  and  debauchery. 

Still,  such  expenses,  or  waste  by  the  wealthy  class, 
represents  but  a  part  of  their  income,  the  balance,  goes 
to  augment  their  fortunes,  and  so  far  as  the  immediate 
present  is  concerned,  is  in  the  possession  of  and  used 
by  the  producing  classes. 

It  is  public  knowledge  that  many  of  our  most 
wealthy  do  not  live  or  rather  waste,  on  anything  like  the 
scale  of  their  incomes.  Some  of  them  live  upon  a 


ioo  The  Other  Side  of  The  Money  Question. 

comparatively  frugal  and  economical  scale.  They  per- 
mit their  incomes  to  be  added  to  the  principal,  01  they 
spend  their  incomes  in  providing  various  things  that 
the  public  makes  use  of  in  much  the  same  manner  as  if 
they  were  installed  direct  by  the  public.  We  find  ample 
evidence  of  this  in  the  schools,  colleges,  hospitals,  parks, 
libraries,  churches,  etc.,  that  h^ve  been  erected  through 
funds  contributed  by  the  wealthy. 

The  writer  is  not  contending  in  behalf  of  such  meth- 
od of  securing  public  institutions,  for  we  believe  that 
every  such  gift,  however,  noble  the  motive  and  however, 
great  its  benefits  along  its  particular  line,  is  silently  but 
surely  working  to  the  undermining  and  destroying  of 
the  essential  spirit  of  democracy,  and  to  cast  a  doubt 
upon  the  ennobling  confidence  of  the  people  in  their 
ability  to  publicly  provide  their  public  institutions 
gradually  leading  the  people  to  a  seivile  dependence 
upon  the  patronage  of  private  beneficience,  to  justify 
wealth  concentration  as  being  the  only  available  method 
to  secure  such  institutions,  and,  by  holding  up  to  view 
the  expected  good  results  to  folldw,  to  indirectly  hush 
the  public  conscience  to  the  manner  and  method  by  which 
those  fortunes  are  oftentimes  accumulated. 

Neither  is  the  writer  actuated  by  any  feeling  of  ha- 
tred for  the  wealthy  classes,  per  se,  for  in  their  lists  are 
found  many  of  the  highest  types  of  manhood  and  wo- 
manhood and  it  is  one  of  the  most  pathetic  teachings  of 
history  that  the  evils  of  concentration  will  fall  upon 


The  Other  Side  of  The  Money  Question.  101 

their  descendants  with  even  more  tragic  force  than  upon 
the  common  people. 

Considering  the  opportunities  they  have  for  doing 
evil  with  their  vast  incomes,  it  is  a  nattering  tribute 
to  them  that  they  have  so  far  been  able  to  largely  resist 
such  temptations  to  work  evil,  but  have  either  permitted 
their  fortunes  to  grow  or  expended  their  incomes  in  di- 
rections that  have  accomplished  as  much  good  and  as 
little  harm. 

But  they  are  blind  to  the  lessons  of  the  past  who 
can  with  confidence  expect  that  such  fortunes  will  al- 
ways be  held  by  ones  equally  as  frugal  and  equally  as 
liable  to  expend  them  in  directions  that  will  result  bene- 
ficially to  the  public. 

The  present  great  fortunes  are  largely  held  by  those 
who  have  "come  from  the  ranks"  or  who  are  removed 
but  one  generation,  they  who  still  have  the  active  push- 
ing productive  spirit,  who  are  still  actual  producers  to 
quite  the  extent  of  their  personal  consumption  and  who 
are  a  real  valuable  factor  in  the  progress  of  the  nation. 

If  history  teaches  one  thing  clearly,  it  is  the  ex- 
treme menace  of  transmitting  fortunes  to  after  genera- 
tions. A  new  generation,  freed  from  birth  of  all  neces- 
sity to  engage  in  useful  work,  with  their  minds  un- 
occupied by  the  countless  problems  that  arise  in  the 
fulfiling  of  the  injunction  lev'ed  by  both  Nattue  and 
Scripture.  "In  the  sweat  of  thy  face  shalt  thou  eat 
bread,"  has  a  constant  and  inevitable  tendency  to  de- 


IO2  The  Other  Side  of  The  Money  Question. 

teriorate,  to  devote  the  time  to  those  things  which  ulti- 
mately wreck  the  finer  instincts  and  appreciations  and  to 
waste  the  energies  of  the  people  in  ways  that  will  give 
no  useful  return. 

History  teaches  that  the  time  comes  when  the  hold- 
ers of  concentrated  wealth  endeavor  to  live  up  to  their 
incomes  by  practically  withdrawing  the  labor  equivalent 
of  their  incomes  from  work  that  is  useful  to  the  public, 
and  diverting  it  to  the  providing  of  a  vast  field  of  menial 
services,  to  all  the  absurdites  that  toadyism  and  flunk- 
eyism  can  invent,  and  to  the  erection  of  great  memorials 
to  transmit  the  evidence  of  their  power  down  to  future 
ages. 

When  such  a  period  of  living  up  to  their  incomes 
becomes  inaugurated,  the  great  present  injustices  of 
the  accumulations  will  be  but  trifling  in  comparison. 

If  they  who  see  little  to  fear  in  wealth  concentra- 
tion would  but  for  a  moment  consider  what  would 
be  the  real  effect  upon  the  people  if  the  in- 
comes from  our  largest  fortunes  were  devoted  to  the 
construction  of  vast  memorials,  and  then  consider  the 
teachings  of  both  reason  and  history  that  concentration 
of  wealth  does  inevitably  lead  to  similiar  or  worse  prac- 
tices, it  would  cause  them  to  take  a  vital  interest  in  all 
of  such  measures  as  are  intended  to  kept  wealth  more 
widely  diffused. 

If  history  repeats  itself  in  the  United  States,  and 
we  ought  not  blind  ourselves  to  its  possibility,  it  will 


The  Other  Side  of  The  Money  Question.  103 

mean  that  the  day  will  come  when  the  holders  of  our 
fortunes  will  pursue  that  very  course,  and  the  greater 
the  concentration,  the  greater  will  be  the  labor  waste 
when  the  holders  begin  to  live-up  to  their  incomes. 

The  more  labor  taken  from  the  field  of  useful  pro- 
ductive work,  the  less  will  be  the  power  of  the  re- 
maining ones  to  provide  the  required  sustenance  and 
every  man  taken  from  the  building  of  homes,  factories, 
railroads  and  other  things  useful  and  profitable  to  the 
people  in  general,  and  put  into  the  field  of  wasted 
labor,  will  represent  so  much  extra  burden  upon  the  re- 
mainder. 

The  standard  of  the  living  would  collapse  until 
the  masses  of  the  people  were  in  a  condition  approximate 
to  serfdom.  It  would  require  heroic  remedies  upon  the 
part  of  the  people  to  prevent  the  entire  fabric  of  modern 
civilization  crumbling  to  ruin  and  the  progress  of  many 
generations  being  swept  away  in  the  effort  to  gratify  in- 
satiable folly  and  vanity. 

Egypt  is  dotted  with  Pyramids  that  stand  as  endur- 
ing testimonials  to  a  frightful  waste  of  labor  m  ancient 
days,  a  waste  that  would  have  brought  joy  and  happi- 
ness to  nations  of  people  had  it  been  directed  into  useful 
channels,  into  producing  the  comforts  and  conveniences 
of  life,  instead  of  being  a  dead  loss  to  the  public,  com- 
pelled to  live  in  abject  povertv  and  doomed  to  unceas- 
ing toil  that  the  whims  and  vanities  of  kings  might  be 
satisfied. 


IO4  The  Of  her  Side  of  The  Money  Question. 

The  labor  was  probably  forced  or  drafted  in  the 
ancient  days,  just  as  they  would  enroll  a  hundred  thous- 
and men  to  wage  war  upon  a  neighboring  tribe,  but  is 
it  the  less  surely  drafted  or  forced  when  accomplished 
through  a  modern  monetary  system  that  gives  the  hold- 
ers of  concentrated  wealth  the  power  to  exact  an  in- 
terest from  all  production, 

As  the  ancient  kings  deemed  the  whole  land  theirs, 
the  forced  labor  necessary  to  erect  such  useless  things  as 
the  Pyramids  was  but  the  ancient  way  of  spending  a 
"reasonable  income"  from  their  wealth. 

In  a  smaller  scale,  on  evory  hand  we  can  see  this 
process  of  profligate  waste  going  on  at  the  present  time. 
Tens  of  thousands  of  men  are  occupied  at  work  that, 
so  far  as  any  beneficial  results  to  society  are  concerned, 
is  as  useless  as  if  they  were  engaged  in  carrying  bricks 
back  and  forth.  The  labor  is  wholly  wasted,  often  worse 
than  wasted,  and  the  most  deplorable  feature  is  that  so 
many  think  such  form  of  labor  is  not  much  different  in 
results  to  the  public  than  if  it  had  been  expended  in  lines 
useful  to  'both  the  individuals  and  society. 

In  addition  to  the  sum  that  could  be  directly  saved 
to  the  wealth  producers,  a  public  money  service  at  cost 
would  also  result  in  indirect  benefits  that  would  also  be 
vast  in  the  aggregate. 

For  instance,  it  will  tend  to  largely  eliminate  the  in- 
terest factor  from  rents.  Under  the  system  at  present, 
those  who  own  more  property  than  they  use,  and  rent 


The  Other  Side  of  The  Money  Question.  105 

out  the  surplus,  calculate  not  only  upon  a  return  equal 
to  the  taxes,  insurance,  wear  and  tear,  depreciation  and 
a  good  margin  as  wages  of  superintendence,  but  they  ex- 
pect an  additional  margin  of  clear  profit  at  least  equal 
to  what  they  could  secure  by  lending  out  a  correspond- 
ing amount  of  money. 

A  public  money  service  at  a  nominal  cost  will  *  nable 
thousands  upon  thousands  of  those  who  have  been  rent- 
ing to  buy  or  build.  They  could  see  their  way  clear 
to  pay  for  their  home  once  from  their  earnings,  but 
deem  it  impossible  to  pay  for  it  twice,  once  in  principal 
and  once  in  interest.  An  at  cost  system  would  stimu- 
late the  home-owning  desire  whereas  the  interest  sys- 
tem discourages  it  by  making  its  realization  so  evidently 
difficult. 

Rents  will  come  down  to  meet  this  new  competi- 
tion. The  present  private  lenders  of  money,  being 
largely  cut  off  from  their  source  of 'revenue,  will  to  some 
extent  invade  the  renting  field  to  get  some  margin  of 
profit  on  their  holdings  and  this  will  also  tend  to  keep 
rents  down,  without  impairing  the  selling  price  of  prop- 
erty. 

In  many  other  ways  indirect  benefits  will  arise,  all 
tending  to  the  same  ends,  viz — To  enable  wealth  produc- 
tion to  be  freed  from  the  burden  of  paying  an  unjust 
"profit"  upon  the  deferred  claims  voluntarily  held  against 
it,  to  prevent  the  savings  of  one  generation  from  being 
the  means  of  oppressing  a  succeeding  generation,  to 


106  The  Other  Side  of  Tbe  Money  Question. 

"weed  out"  some  of  the  unnecessary  middlemen,  and  to 
put  a  lot  of  those  now  living1  from  the  returns  of  inter- 
est to  useful  productive  work,  of  benefit  to  themselves, 
their  descendents  and  society  at  large. 

As  in  the  existing  large  measure  of  privafe  owner- 
ship and  control  of  the  money  mechanism  we  find  one 
of  the  greatest  factors  aiding  wealth  concentration,  so 
in  the  re-organization  of  the  money  system  upon  a  full 
public  basis  we  find  one  of  the  most  effective  iru-ans  to 
arrest  such  concentrative  tendency  and  to  aid  in  the 
diffusion  of  wealth  ownership  more  equitably  among  the 
real  producers  of  the  wealth. 


CHAPTER  X. 

SIMPLICITY  OF  MEASURES  NECESSARY  TO  INSTALL  A  PUBLIC 
MONEY     SERVICE  —  PRESENT     SYSTEM     ESTABLISHES 
PRECEDENTS — A  PUBLIC  MONEY  SERVICE  HAR- 
MONIZES    WITH    OTHER     PROGRESS. 

Is  it  possible  to  adjust  a  thoroughly  public  money 
system  to  existing-  methods  so  that  the  one  would  su- 
persede the  other  without  causing  endless  difficulties? 
Is  the  proposal  feasible  or  is  it  not  too  much  of  an  ideal 
to  "work  out"  in  actual  life? 

"Every  cloud  has  its  silver  lining"  and  the  silver  lin- 
ing of  the  money  question  storm  cloud  lies  in  the  abso- 
lute ease,  safety  and  simplicity  of  the  all-sufficient  reme- 
dies. They  involve  no  great  constructive  enterprise  like 
the  building  of  railroads  and  canals.  They  involve  no 
great  system  of  complex  and  harassing  administration, 
such  as  the  postal  system  is,  or  as  the  suggested  nation- 
alization of  the  railroads  would  be. 

As  a  matter  of  fact  the  naiionalization  of  the  money 
service  woul'd  immensely  simplify  the  money  mechanism 
and  bring  harmony  where  now  confusion  reigns  su- 
preme. 

In  actual  practice  it  would  mean  but  the  establish- 
ment of  one  great  system  of  real  public  banks  to  take 


io8  The  Other  Side  of  The  Money  Question, 

over  the  bulk  of  the  business  now  transacted  by  many 
private  ones,  and,  through  the  operation  of  those  banks,,, 
the  maintainence  of  the  money  mechanism  so  that  con- 
stant stability  would  be  assured. 

The  establishment  of  a  full  public  money  service 
would  not  cause  people  to  change  their  methods  of  busi- 
ness. Circulating  moneys  would  still  be  used  to  what- 
ever extent  necessary.  People  would  still  deposit  in 
banks,  and  "check  out"  from  the  same.  All  of  such  busi- 
ness could  t>e  done  quite  as  easily  and  with  far  more  safe- 
ty under  a  simplified  government  system  than  under 
the  present  one  with  all  its  uncertainties. 

The  money  service  would  still  be  available  for  bor- 
rowers upon  deposit  of  adequate  security,  but  it  would 
be  placed  upon  a  more  stable  basis,  and  the  prospec- 
tive borrower  could  go  to  the  public  source  of  supply 
with  the  same  feeling  of  independence  that  he  goes  to  the 
postoffice  to  transact  postal  business,  instead  of  the 
feeling  of  mendicancy  and  humbleness  with  which  the 
borrowers  are  now  so  often  piactically  compelled  to  ap- 
proach the  providers  of  the  money  service. 

A  public  money  system  would  not  be  so  much  the 
creating  of  anything  new  as  it  would  be  the  populariza- 
tion of  that  which  is  already  in  existence  and  every  step 
in  such  process  would  result  in  good  to  the  public  at 
large. 

Even  in  such  system  of  lending  upon  securty  the 
government  would  not  be  establishing  anything  new  to 


The  Other  Side  of  The  Money  Question.  109 

itself,  either  in  theory  or  practice,  for  at  the  present 
time  the  government  is  a  lender  to  the  National  Banks 
almost  to  the  extent  of  one  billion  dollars,  about  one- 
fourth  of  the  amount  being  the  Treasury  surplus,  bearing 
no  interest,  and  the  remainder  being  the  circulating  notes 
of  the  National  Banks,  bearing  only  one-half  of  one  per 
cent. 

It  is  one  of  the  ironies  of  the  situation  that  the 
government,  in  its  treatment  of  the  present  National 
Banks,  has  already  established  the  precedent  for  the  in- 
stitution of  a  full  public  money  service.  If  the  govern- 
ment would  treat  the  general  run  of  people  the  same  as 
it  does  the  present  National  Banks,  giving  them  the  op- 
portunity to  get  their  money  service  at  cost,  upon  the 
security  which  they  possess  ar.'d  which  constitutes  the 
real  wealth  and  capital  of  the  nation,  the  question  will 
be  most  effectually  solved. 

Would  it  be  necessary  to  attempt  to  inaugurate  the 
system  in  full  at  one  sweep? 

Certainly  not,  nor  would  it  be  practicable.  The 
system  could  be  established  by  degrees,  the  government 
service  taking  over  one  field  after  another,  until  in  a 
few  years  it  would  be  in  pOv;session  of  practically  the 
entire  service. 

Should  the  government  enter  the  field  of  discount- 
ing "accomodation  paper,"  etc.?  Not  at  all.  Thj  gov- 
ernment service  should  be  confined  to  the  "sure"  busi- 
ness, that  in  which  the  security  would  be  definite,  be  a 


1 10  The  Other  Side  of  The  {Money  Question. 

matter  of  public  record,  where  the  officials  of  the  gov- 
ernment banks  would  have  no  power  except  to  ascer- 
tain the  correctness  of  the  security  offered,  and  to  makf 
the  loan  in  harmony  with  the  actions  of  the  central  or- 
ganization that  would  from  time  to  time  regulate  the 
volume  so  as  to  maintain  the  stability  of  the  service  un- 
impaired. 

It  would  be  impracticable  and  inadvisable  for  the 
government  to  undertake  to  make  loans  upon  personal 
notes  or  security  of  doubtful  value,  for  such  loans  largely 
depend  upon  varied  local  conditions,  honesty  and  busi- 
ness ability  of  the  borrowers,  ttc. 

But  as  the  government  system  would  drive  private 
lenders  from  the  field  of  "sure"  business,  there  will  be 
plenty  of  opportunity  for  those  seeking  "accomodation" 
loans  to  get  them  from  private  lenders  and  the  competi- 
tion to  get  such  business  will  give  the  borrowers  a  far 
lower  rate  of  interest  than  at  present.  The  money  own- 
ers would  be  seeking  the  prospective  borrowers,  just 
as  any  person  with  goods  to  sell  seeks  the  market. 

It  is  probable  that  very  little  cash  would  b-^  used 
by  anyone  except  in  the  retail  and  minor  tranactions. 
All  business  of  any  magnitude  would  be  done  with 
checks.  There  would  be  no  necessity  to  keep  great  re- 
serves of  cash  money  piled  up  in  the  government  banks. 

But  any  and  all  who  wished:  to  do  so  could  draw  out 
their  deposits  and  it  would  not  in  the  least  interfere  with 
the  operation  of  the  system,  for  it  would  be  one  of  the 


Tbe  Other  Side  of  The  Money  Question.  \  1 1 

strong  points  of  a  government  service  that  the  entire  vol- 
ume of  money  mechanism  could,  if  required,  be  exchanged 
into  cash  moneys  without  causing  any  injurious  results. 

The  money  mechanism  is  more  of  a  book-keeping 
process  than  an  exchange  of  cash  moneys.  The  financial 
troubles  of  the  past  few  months  bear  ample  evidence  of 
that.  Though  the  depositors  in  the  banks  were  to  a 
considerable  ,extent  wanting  to  draw  out  the  cash,  the 
banks  practically  suspended  cash  payments  and  by  so 
doing,  though  it  was  illegal  r-nd  an  outrage  that  they 
were  under  the  necessity  to  adopt  such  course,  they  were 
enabled  to  largely  continue  the  vast  book-keeping  divis- 
ion in  operation. 

For  months  the  monetary  business  of  the  country  was 
transacted  largely  by  book-keeping,  little  cash  being 
used.  Such  illustration  was  a  striking  proof  of  the 
fallacy  of  money  having  socalled  "intrinsic  value." 

When  once  in  full  operation  and  the  average  per- 
centage of  loan  to  security  established,  the  system  would 
be  almost  automatic,  the  chief  feature  of  administration 
being  the  ascertainment  of  average  prices  and  regula- 
tion of  the  loaning  margin  so  that  the  exact  volume  of 
money  service  necessary  to  maintain  prices  would  al- 
ways be  provided. 

Under  a  public  system,  Inflation?"  and  "contrac- 
tions "  booms"  or  "panics"  would  be  a  thing  of  the  past, 
all  the  people  would  be  selfishly  interested  in  maintain- 
ing a  normal  healthy  condition  of  business  and  would 


H2  The  Other  Side  of  The  Money  Question. 

be  directly  interested  in  having  the  money  service  prop- 
erly regulated,  just  as  they  are  now  interested  in  hav- 
ing a  satisfactory  postal  service. 


The  ingenuity  of  the  people  has  created  an  industrial 
mechanism  marvelous  beyond  all  precedent  and  the  fu- 
ture no  doubt  is  capable  of  even  more  rapid  improve- 
ment in  such  mechanism.  Shall  the  people  likewise  re- 
organize and  construct  their  money  mechanism  upon  a 
public  basis  that  will  enable  the  industrial  mechanism 
to  be  constantly  employed  at  its  highest  efficiency,  and 
that  will  operate  so  that  the  wealth  produced  shall  not 
be  diverted  from  those  who  are  its  real  producers  and 
rightful  owners  ? 


To  the  reader  who  has  thus  patiently  followed  the 
argument  the  author  desires  to  express  his  kind  appre- 
ciation. Though  all  of  it  may  be  devoid  of  literary  style ; 
though  it  may  and  no  doubt  does  contain  many  errors 
both  in  the  premises  and  reasoning,  if  something  has 
been  said  that  will  cause  you  to  take  a  greater  interest 
in  the  subject  of  "money"  and  to  spur  you  on  to  further 
investigation,  the  la'bors  of  the  writer  will  not  have  been 
in  vain,  whether  you  conclusions  rnay  in  the  main  ac- 
cord or  be  directly  opposed  to  those  herein  expressed. 


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APR  17 101ft 


30m-l,'15 


I  88037 


;  / 


